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It is almost a full lockdown in the Czech Republic as the seven-day moving average of new COVID-19 cases has risen sharply. The EUR/CZK pair has broken above the 27.20 resistance and the next target is the May high 27.813, Piotr Matys, Senior Emerging Markets FX Strategist at Rabobank, reports.

Key quotes

“The Czech Republic has decided to close schools, restaurants and bars until early November to regain control over the coronavirus pandemic. The government also banned the consumption of alcohol in public and imposed limits on outdoor gatherings to six people after the country became the coronavirus hot spot in Europe. On Friday the Czech Republic reported a record high daily infections of 8,618. The latest restrictions will be gradually eased when the virus reproduction rate falls to 0.8 from around 1.5.”

“The pace of economic recovery is likely to slow down in Q4 and the economy will contract more than 6.6% y/y the finance ministry currently envisages. CNB’s forecast of -8.2% for 2020 GDP is far more realistic.”

“The downside risk to the economy will increase if the latest domestic restrictions will have to be extended beyond early November. It is also possible that in the coming weeks a full lockdown may have to be announced if the pace of infections remains high.”  

“The latest restrictions accompanied by deteriorating global sentiment provided EUR/CZK with sufficient momentum to break above the resistance area at 27.20. The May high at 27.813 is the next key level to watch on the upside.”