February 2016 revealed the news of a slight slowdown in the Czech economy during Q4 of 2015. It seemed the Koruna weakened against the Japanese Yen, which spiraled upwards against all the major currencies on safe-haven appeal. The CZKJPY currency pair fell from a high of 4.83 to a low of 4.4950 in a matter of 3.5 months. However, recent Czech economic data and the market’s speculation about the Bank of Japan’s future monetary decisions indicate that the CZKJPY currency pair would probably exhibit a short-term trend reversal.
In 2015, the decline in the energy prices and the increase in investments resulted in a 4.3% growth in the GDP of Czech. The current year is not expected to register a similar growth. Nevertheless, the Czech National Bank (CNB) anticipates the country to register a 2.7% economic growth in 2016.
In April, the consumer prices registered a 0.6% increase over the prior month. This bolstered the inflation to 0.6% in April. The CNB is battling weak inflationary pressure since 2012. The inflation target, which was set in the range of 1% to 3%, was not achieved since 2012. The rise in inflation in April has provided a glimmer of hope to the CNB. The CNB now anticipates an inflation rate of 1.4% in 2016.
In the case of the Japanese Yen, contrary to expectation, the BoJ refrained from announcing further easing measures in the April monetary policy meeting. However, it announced an indirect stimulus in the form of loans to quake-hit areas. Now, there is a rise in speculation that the Bank of Japan (BoJ) would resort to further monetary easing as early as next month.
A stronger Yen continues to hinder economic growth. The Japanese exports fell 6.8% for the sixth straight month in March. Thus, it is amply clear that BoJ will attempt all possible measures to weaken the Yen, which is rising on safe-haven appeal. So, fundamentally, the CZKJPY currency pair can be expected to go up in the short-term.
Last Friday, the CZKJPY pair bounced from the major support of 4.54. The stochastic indicator reflects a heavily oversold situation in the CZKJPY counter.
Thus, taking a long position at the prevailing level (4.55) would be the most prudent decision as far as a currency trader is concerned. A stop-loss order can be placed 150 pips below the entry price. The long position can be closed when the price reaches the next major resistance at 4.57.
In line with the trend, a one-touch call option contract should be purchased by a binary options trader to benefit from the probable uptrend in the CZKJPY currency pair. A strike price of 4.5650 or lower would give more chances of sealing the trade in favor of the binary options trader. Similarly, an expiry date in the third week of June would more than suffice for the trade.
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.
