The EURNZD pair has fallen from 1.6930 to 1.6730 in the past three trading sessions. The Eurodollar sell-off was triggered by a 4.9% increase in the average dairy product prices in the auction conducted on January 16. Almost 95% of the dairy products produced by New Zealand is shipped overseas. Furthermore, the average price at which the dairy products changed hands was $3,310 per ton.
The New Zealand farmers require a minimum of $3,300 to break even. All these facts strengthened the New Zealand dollar against the Eurodollar. However, we believe that the downtrend will be short-lived and the EURNZD pair will bounce back in the days ahead due to the reasons given below.
According to Jason Wong, a currency strategist at the Bank of New Zealand, the New Zealand dollar will turn weak due to a rising global interest rate scenario. Traditionally, New Zealand used to offer higher interest rates, compared to its G10 counterparts. That has been keeping the New Zealand dollar bullish against its rivals. However, the interest rates in New Zealand are not expected to increase from the current level of 1.75% in the foreseeable future. Thus, Kiwi bonds and the Kiwi dollar are losing their attractiveness among investors.
Jason Wong also pointed out that the Euro remains fundamentally undervalued against the New Zealand dollar. Further, the market also expects the ECB to end the current quantitative easing program by September 2018. Thus, all the fundamental factors favor a resumption of the bullish rally in the EURNZD pair.
Technically, the EURNZD pair is trading near the support level of 1.6670. Furthermore, the momentum indicator is rising towards the zero reading. Therefore, we anticipate the EURNZD pair to turn bullish in the short-term.
We may open a long trade in the EURNZD pair near 1.6680 to benefit from the forecast. A stop-loss order will be placed below 1.6550 to minimize risk. If the pair moves northwards, as anticipated, then we will book our profit near 1.7100 levels.
Simultaneously, in the binary market, we may purchase a call option when the EURNZD pair trades near 1.6680 in the Forex market. While investing in the option, we will choose a date around January 31 for the expiry of the contract.
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.
