EUR or CZK
The Czech Crown, Hungarian Forint, and the Polish Zloty are the currencies of the so-called "Visegrad Four," with the fourth country in this club being the Slovak Republic. However, Slovakia has already adopted the Euro.
According to the Czech government, the country is in no rush to adopt the shared currency, and it seems that this won't happen anytime soon if it happens at all.
The quotation of the cross says to traders how many Czech Crowns are needed to buy one Euro.
Thus, the value of the EURCZK cross is quoted as 1 Euro per X Czech Crowns. Meaning, if the cross is trading at 25.00, it requires 25 Czech Crowns to buy one Euro. If the EURCZK cross rises to 26.00, it means that the Euro has strengthened (the crown has weakened), and it now takes 26 crowns to buy one Euro. On the other hand, if the EURCZK cross drops to 24.50, it means that the Euro has weakened (and the CZK has strengthened), and it now takes 24.50 crowns to buy one Euro.
What drives the EURCZK cross?
The main driver of the price is the difference in monetary policies—also the difference between the GDP growth in the Eurozone and the Czech Republic.
As the eurozone had been suffering recently from slow growth, massive quantitative easing, and negative interest rates, capital had been flowing into the Czech Republic. The country offered higher capital appreciation and more investment opportunities. That led to a significant appreciation of the CZK and the EURCZK cross used to trade around 24.00 - 25.00 during 2011-2014. The strong crown was terrible news for exporters as the Czech Republic is an export-oriented country. Thus, the Czech National Bank pegged the EURCZK cross to 27.00 and defended this barrier for many months, before it was finally de-pegged.
The CZK strengthened notably afterward, and the EURCZK cross dropped back to the 25.50 range, where it traded until the coronavirus panic in March 2020. Like all other central banks, the CNB also cut rates and loosened monetary policy, which made the CZK less attractive, and the cross rose to 27.50.
Performance
Below is the weekly chart of the EURCZK cross. You can see the period of minimal volatility as the cross was pegged to 27.00 for many months. The CNB had been buying large amounts of euros and selling crowns to defend this level. In 2017, the central bank decided to abandon this peg, which led to an appreciation of the CZK. The EURCZK cross found its equilibrium price in the 25.50 region.
However, the coronavirus risk-off sentiment led to a steep sell-off of the CZK, and other "riskier" currencies. Thus, the cross jumped 10%, and it was trading near 27.50 as of May 2020.
Source: Purple Trading MetaTrader 4