The real impact on the economy of Britain from a probable exit from the EU is largely unknown. While there are arguments in favor and against the exit, the speculators in the forex market piled up profits by going short on every rise of the Pound. However, with just seven weeks to go for the referendum, the downtrend in the Pound now seems to be over or temporarily halted. This is particularly true in the case of the GBPNZD currency pair.
The Bank of England is scheduled to publish the quarterly inflation report and announce the interest rate decision on May 12, 2016. While the market participants and analysts do not expect any change in the interest rates, the inflation data would be closely watched.
In the past three reports, the inflation rate stood higher than anticipated. In fact, according to the Office for National Statistics, inflation rose to 0.5% in March. However, the market largely played it down. However, it may not be the case this time. The gap between the prevailing exchange rate of the Pound and where it should be based on the inflation rate expectations would be certainly closed sooner. If not, the interest hike expectations would force the market to fill the gap.
Beginning May, the New Zealand dollar was one of the worst-performing G-10 currencies. The main reason was the decline in the value of the Aussie. The rate cut by the Reserve Bank of Australia (RBA) followed by the gloomy monetary statement led to the decline in the exchange rate of the Aussie. With the Aussie interest rate at 1.75%, the Reserve Bank of New Zealand would be hard-pressed to go for a rate cut.
The current interest rate in New Zealand is 2%. If the interest rate is left unchanged, it would seriously affect dairy exports and tourism. In this regard, the market will closely look at the Reserve Bank of New Zealand’s financial stability report slated for publication on May 11th, 2016. A rate cut would increase dairy exports and boost inflation.
Thus, the market is betting on a rate cut soon. So, fundamentally, the GBPNZD pair can be expected to turn bullish in the coming week.
The GBPNZD pair is currently trading near the major support at 2.0809. Technically, as the chart indicates, the momentum indicator has crossed above the reading of 100. Furthermore, the mainline of the MACD is above the zero level and the signal line. This indicates that an uptrend is about to begin in the GBPNZD pair.
So, considering the technical and fundamental aspects, a currency trader should enter a long trade with a stop-loss at 2.0630. The long position should be diluted when the currency pair nears 2.21 levels.
In the case of a binary options trader, the uptrend should be capitalized through the purchase of a one-touch call option contract. The trader should wisely choose a target price near 2.14 levels. Any expiry date in the second week of June would be suitable 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.
