ECB Member’s Support for Rate Hike Keeps Euro Strong

ECB Member’s Support for Rate Hike Keeps Euro Strong
March 20, 2017

On the basis of encouraging inflation and PPI data from the European Union, we had forecasted the possibility of a strong Euro dollar rally on March 6th. Additionally, we had also suggested taking a long position in the EURUSD pair near 1.0580, with a target of 1.0720. For binary traders scouting for trading opportunities, we had recommended purchasing a high or above option. Both the suggestions turned out to be profitable. Despite the US Fed hike, the Euro continues to stay strong against the US dollar, and closed at 1.0737 on Friday. That makes the pair an interesting case for study. In this regard, we have attempted to do the fundamental and technical analysis of the currency pair underneath to arrive at a trading decision.

In a note sent to clients, Hans Redeker, currency strategist at Morgan Stanley, has stated that the Greenback would find it difficult to appreciate against its rivals due to Trump’s anti-US dollar policy. Since the time of winning the Presidential election, Donald Trump has repeatedly expressed his concern over a strong dollar. All attempts to reflate the US economy would fail if the Greenback gets stronger, as exporters would find it difficult to sell their products overseas. Fortunately, Trump’s decision to deregulate banks has come as a saviour. To invest in emerging markets, following deregulation of the banking sector, US dollar needs to be sold in exchange of the local currency. Such an act would weaken the US dollar.

In the Europe, the victory of pro EU Prime Minister Mark Rutte in the Dutch election has relieved considerable pressure on the Euro dollar. According to Jan Von Gerich of Nordea Markets, the limited gains of the anti-EU Freedom party would strengthen the financial markets and the Euro in particular.

The unexpected support for a raise in the ECB interest rates by Ewald Nowotny – Austrian representative on the ECB’s council and governor of the Austrian National Bank- is also expected to keep the Euro’s uptrend intact. On Thursday last week, Nowotny opined that the ECB could raise the deposit rate, before altering the refinancing rate. On the basis of these latest developments we forecast the EURUSD to remain in an uptrend in the short-term.

The EURUSD pair is moving within an ascending channel, as shown in the image below. The rising stochastic oscillator supports the uptrend. Support for the currency pair exists at 1.0680. Considering these facts, a trader can anticipate the EURUSD pair to reach the resistance level of 1.0950.

EURUSD - Technical Analysis - 20th March 2017

Since the downside is limited, a Forex trader can go long in the EURUSD pair near 1.0700. To minimise losses, a stop loss order can be placed around 1.0640. The long position can be diluted near 1.0950.

A trader who is active in the binary market can purchase a call option to set up the equivalent of a long position in the currency market. A date around March 28th can be picked for expiry. The investment should be preferably made when the pair trades near 1.0700.



Sammy is our forex expert, with over 20 years experience in the financial sector, she will be keeping you up to date with the ups and downs of currencies around the world

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