Euro remains weak on worries over political uncertainty

Between December 15th and January 11th , the EUR/NZD pair appreciated from 1.4740 to 1.5230. The main reason for the appreciation was the FOMC’s statement underlining the possibility of three rate hikes of 25 basis points in 2017.

The statement made the New Zealand dollar unattractive as a carry trade currency.

The Euro also gained because of improving unemployment situation and the announcement by the ECB (European Central Bank) to decrease the quantum of bond purchases to €60 billion from April onwards.

However, as of last Friday, the Euro dollar was unable to consolidate at 1.50 levels and have declined to about 1.4920. We expect the bearishness in the EUR/NZD pair to continue in the week ahead due to the reasons provided below.

RT

Last Thursday, economists and analysts were closely watching Trump’s conference for clues on measures that are going to be taken on a high priority basis to fuel growth.

However, Trump did not divulge any details. On the contrary, Trump’s negative comment calling for competitive pricing of drugs pushed down the US equity markets, and pharmaceutical stocks in particular, in red. The currency markets were not spared as well. The Greenback, which is already perceived as overbought, began its decline against the major currencies. This propelled the commodity currencies such as the Aussie and the New Zealand dollar. Analysts also anticipate the Reserve Bank of New Zealand to announce two 50 basis point hike in 2017. However, analysts do not wish to bet on the timing of the hike. Such expectations would keep the Kiwi dollar strong.

The Euro zone, on the other hand, is due to face a lot of political volatility in 2017. The deadline for Switzerland to implement immigration referendum result is on February. In March, the UK parliament is expected to trigger Article 50 in order to formerly begin Brexit related negotiations with the EU. In the same month, the Netherlands will go to the polls. A month later, the French would cast their vote to select the new government.

Finally, the German Federal election is scheduled in August. The outcome of these elections will certainly have a huge impact on the Euro dollar. Thus, perceived political risk is expected to keep the Euro under pressure against the New Zealand dollar.

The EUR/NZD pair faces strong resistance at 1.5050. On the downside, minor support exists at 1.4780. The descending MACD indicator reflects a loss of momentum. So, we can expect the EUR/NZD pair to break below the minor support and test the major support at 1.4380.

A currency trader can open short position in the EUR/NZD pair to benefit from the fundamental and technical analysis presented above. The short position can be taken near 1.4930. If the cross declines as forecasted then profits can be booked near 1.4720 levels. Traders with risk appetite can wait for the currency pair to decline to a low of 1.4420. To have a control over unexpected losses, a stop loss order can be placed above 1.5080.

A similar setup can be established in a binary market by investing in a low or below contract. The contract should be bought only if the asset pair trades above 1.4920. The put option equivalent should also remain valid for a period of one week.

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