French elections, dovish stance of ECB keeps Euro bearish
The rise of anti-EU leader Marine Le Pen in the French elections has temporarily turned the Euro zone as a risky place to invest. That weakened the Euro against the New Zealand dollar, a commodity currency.
However, the EUR/NZD pair’s decline halted at 1.5156 levels last week due to an improvement in the German ZEW economic sentiment data. We believe that the halt was temporary and the EUR/NZD pair would begin its downtrend soon.
According to Jason Wong, currency strategist at Bank of New Zealand, the Kiwi dollar is undervalued and a rebound is possible at any time. Wong argues that a rise in risk appetite, increase in commodity prices and an extremely oversold scenario favor a New Zealand dollar’s rally.
The data (Commitment of Traders Report or COT) pertaining to the short and long positions in the futures market are reported weekly by the CFTC. The data indicate that the net short position in the New Zealand dollar is currently at its highest level since 2016. A short-covering, as expected by analysts, would bring in a steep rally in the Kiwi dollar.
The price of dairy products, which constitutes a major portion of New Zealand’s export revenue, increased during the auctions conducted on March 21st and April 4th . The average price of dairy products is back above the crucial level of $3,000 per ton. The price rise is yet to offset the 6.3% decline registered in March 4th . However, analysts believe that a further rise in the dairy price is on the horizon, due to widespread flooding in the North Island. An increase in the price of dairy products would further strengthen the New Zealand dollar.
Finally, economists point out one more fact in favor of a rally in the New Zealand dollar. When most of the currencies fell on the news of Syrian bombings, the New Zealand dollar was unmoved.
The Euro dollar, on the other hand, remains weak due to upcoming elections in France. The increasing chances of anti-EU leader Marine Le Pen’s victory have turned the investors nervous. Furthermore, the dovish stance of ECB President Mario Draghi is also keeping the Euro dollar weak. Draghi recently stated that the ECB would maintain its accommodation policy to aid the Euro zone’s economic recovery. Thus, we can expect the EUR/NZD pair to resume downtrend soon.
Technically, the pair faces resistance at 1.5210. The MACD indicator is moving below the zero line. This indicates lack of buying support. The pair is also trading below the 50-day moving average of 1.5248. Thus, we can anticipate the pair to decline further.
A short position in the EUR/NZD pair can be opened in the currency market to benefit from the impending downtrend. The EUR/NZD pair can be sold when the pair trades near 1.5160. The stop loss and take profit order can be placed at 1.5260 and 1.4980, respectively.
With an investment in a put option offered by a binary broker, a trader can establish a short position in the EUR/NZD pair. The option contract, valid for a week, should be purchased when the pair trades near 1.5160.
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