The Eurozone registered a 0.3% economic expansion in the third quarter of 2016. Although the growth is feeble, still, it inspired confidence about the Euro zone’s economic recovery. This enabled the Eurodollar to strengthen against the Greenback and even the commodity currencies such as the Aussie. The Euro’s uptrend was also aided by the ECB’s decision to limit monthly bond purchases to Euro 60 billion from April 2017. We anticipate the EURAUD pair, which is currently trading at 1.4180, to rise further due to the reasons mentioned below.
David Bloom, an analyst at HSBC, believes that the lower than expected inflation rate in Australia may put pressure on the RBA to reduce the benchmark interest rate further to 1.25%, from the current 1.50%. Furthermore, David Bloom is of the opinion that the rising interest rate scenario in the US would ensure that the interest rate differential between the Greenback and the Aussie would close soon. This would ultimately decrease the attractiveness of the Aussie as a carry trade currency.
The strength of the Aussie is governed by three factors, namely commodity price, exports to China, and carry trade. The price of coking coal has already declined by about 23% this year to about $172 per ton. Trump’s standoff against China would invariably affect Australian exports to China. Finally, as discussed in the above paragraph, the Australian dollar is losing its relevance as a carry trade currency. Thus, considering the above facts, analysts at Morgan Stanley also have a bearish view of the Aussie.
The Eurozone economy has begun 2017 on an optimistic note. There are signs of inflationary pressure, albeit weak, in the Eurozone (consumer prices increased 1.1% y-o-y in December). Furthermore, the manufacturing industry PMI reading hit a five year high of 55.1. In this regard, Chris Williamson, chief economist at IHS Markit, opined that the Eurozone would register modest GDP growth of 0.4% in the first quarter of 2017. The only concern analysts have at this point in time is the rising nationalist sentiment in several European countries. Thus, based on the above discussion, we expect short-term bullishness in the EURAUD pair.
The EURAUD is presently trading near the major support level of 1.4150. The CCI indicator is emerging out of the -100 level. So, there is a high probability of a bullish reversal in the EURAUD pair.
A Forex trader can take a long position near 1.4180 in the EURAUD pair to capitalize on the forecasted uptrend. To limit losses, a stop-loss order should be compulsorily placed below 1.4080. If the forecast turns out to be true, then the trader can sell the long position at about 1.4340.
By investing in a high or above contract, a binary trader can profit from the EURAUD pair’s uptrend. The investment can be made only if the cross is trading below 1.4200. Furthermore, the contract should not expire before February 8th.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
