German Factory Orders, Macron Win Keep Euro Bullish

German Factory Orders, Macron Win Keep Euro Bullish

To the surprise of several market participants, the outcome of the French election pushed the Euro lower against several major currencies including the Aussie. The main reason for the decline is the market had already priced in a victory of Emmanuel Macron, after the first round ended in his favour. Thus, profit booking commenced as soon as the election results came in as expected. However, the downtrend may be short-lived, and the EURAUD pair, which is currently trading at 1.4780, could rise in the days to come due to reasons given below.

Commenting on the outcome of the French election, Lars Henriksson, currency strategist at Handelsbanken in Stockholm, stated that the victory of Emmanuel Macron has ensured that France would continue to stay in the EU and Euro zone at least for a period of five years. Thus, the victory of pro-EU candidate Emmanuel Macron, and the signing of the preliminary debt agreement by Greece would strengthen the Euro.

Capital Economics’ FX analyst Oliver Jones has pointed out one important development that may lead to a huge upsurge of the Euro. At the end of the first round of the French election, the spread of the French-German government bond (10-year term) narrowed considerably. With Macron’s win, Jones anticipates the spread to decline to around 25 basis points. This would bolster the Euro against the Greenback and other major currencies, including the Aussie.

While the market was busy studying the repercussions of Macron’s victory, the Federal Statistical Office of Germany (Destatis) reported a 1% m-o-m increase in industrial orders in March, against analysts’ expectation of 0.7% increase.

Likewise, the Sentix economic index reading for the Euro zone increased to 27.4 in May, from 23.9 in the earlier month, and above the market’s expectation of 25.3.

On the contrary, recent economic data from Australia indicates a slight slowdown. After recording an upwardly revised 8.9% m-o-m growth in building approvals in February, the economy registered a 13.4% m-o-m decline in March. The steep decline was wider than analysts’ expectation of 3.9% negative growth. Thus, fundamentals favour a EURAUD rally in the short-term.

Technically, the EURAUD pair has formed a bullish flag pattern as shown in the chart below. The stochastic oscillator continues to stay in the bullish zone. Thus, we can expect the cross to reach a high of about 1.5200, based on the length of the flag pole. EURAUD - Technical Analysis - 10th May 2018

A long position in the EURAUD would be ideal at this point in time. The entry can be made near 1.4800, with a take profit order at 1.5200. To minimise speculation related risk, a stop loss order can be placed below 1.4720.

To trade the pattern in binary market, a call option can be bought when the EURAUD pair trades near 1.4800. The expiry date of the contract should be preferably between May 18th and May 20th.

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