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By Jan Lopatka
PRAGUE, April 14 (Reuters) - The Czech crown <EURCZK=>
soared 7.9 percent to all-time highs in thin overnight trading
before dropping back on Monday, an unprecedented move that
sparked speculation that the central bank may intervene.
The crown traded as high as 23.00 to the euro late European
time on Sunday -- a 7.9 percent rise from the close of trading
in Prague on Friday.
It then dropped sharply to 24.670 at 1537 GMT on Monday,
still 1.2 percent above Friday levels and up from previous
all-time high of 24.83 seen on March 4.
Traders said options trading in Asia was behind the move,
and some questioned whether there may have been an erroneous
trade that set off the rally.
"The move was driven by one-off purchases by foreign players
in a little liquid market," said bank CSOB in a report.
"The optimism does not have to wane at the beginning of the
week. The sharp drops of the euro/crown pair activated a number
of stop-loss selling of euros and dollars, which may resound in
the market in the coming days," it said.
It added that if the crown holds on the strong side of 25,
it may spark more dovish talk from the central bank. Analysts
have been split over the chances of another interest rate hike
in the current cycle, following 125 basis point tightening to
3.75 percent since the last spring.
The crown has been rising due to fast economic growth in the
central European country, seen as a safe haven with a track
record of currency gains.
The Reuters trading system showed one trade worth just 1
million euros at the 23.00 level. There was a trade of at least
10 million at 23.495 and a trade worth 4 million at 23.500.
The central bank (CNB) had no immediate comment on the
currency move.
The crown was 11.7 percent higher from a year ago on Monday
in local currency terms.
The central bank has seen the crown rise as excessive in the
past months. It agreed a deal with the government last week to
curb the currency's strength by removing state foreign currency
revenues from the market, but has shied from intervention.
"As this morning's move so unquestionably and clearly is
unwarranted it creates a test of the CNB's real willingness to
prevent a further slide in EUR/CZK," said Commerzbank analyst
Ulrich Leuchtmann.
"If it stays inactive or again only is willing to agree on
symbolic measures this is an invitation to the market to pull
down EUR/CZK as far as it likes. But perhaps this was a wake up
call for the CNB."
Analyst Lars Christensen from Danske Bank agreed the chances
of intervention have risen, adding the move was a "freak event".
"People were squaring up positions before the IMF (weekend
meeting), there was low liquidity. If it had to happen on any
day of the year, then this was the day. But it is the black swan
that no one expects to go by," he said.
But Citibank analyst Jaromir Sindel said he expected the
central bank to stay put for now and see where the crown rate
settles in a standard liquid market.
"The central bank will wait until it shows what happens next
throughout the week," he said.
"This will influence all the positions closed. It will be
interesting how exporters deal with it... there will be many
trades that had some stop-losses, they will go into new ones, it
will be very interesting."
(Additional reporting by Carolyn Cohn in London)
(Reporting by Jan Lopatka, editing by Ian Jones)
