USD/CZK could benefit from a correction higher of the US dollar – MUFG

Analysts at MUFG Bank, consider a long trade idea on the USD/CZK. They see there is an increasing risk of a correction higher for the US dollar in the near-term. They think of a target at 23.100, with a stop -loss at 21.800.

Key Quotes:

“European currencies have outperformed against the USD since mid-May but there are tentative signs that the favourable trend for European currencies is beginning to turn. The CZK was the best performing European currency over the recent period of outperformance as it strengthened by around 14% against the USD. If the tide is now turning, the CZK could start to retrace more of those sharp gains. Bullish sentiment towards European currencies has become overdone and is overdue a correction. The ECB’s decision to push back against EUR strength could help to trigger a broader correction lower for European currencies such as the CZK in the near-term.”

“The growth of new COVID cases has also risen sharply in the Czech Republic which poses a downside risk to the economic recovery. In addition, we expect emerging market currencies to find it more challenging as we move closer to the US election especially if the race continues to narrow.”