The Pound has gained a lot of ground against most of the major currencies in the past three months. However, unlike the forecast of pessimists, there is no let down in the momentum. There are two main factors that have contributed to the relentless upswing. Firstly, it is the strong inflation and GDP growth data that continues to exceed analysts’ estimates. Secondly, the market has realized that the Pound has been battered too much on the basis of the Brexit issue, which has a negligible impact, so far, on the economy. The reality enabled the Pound to rally even against commodity currencies such as the New Zealand dollar. Since March 1st, the GBPNZD pair had rallied 700 pips to hit a high of 1.7821 last Thursday. We forecast the uptrend to continue in the short-term on the basis of the facts provided below.
In New Zealand, the average price of dairy products increased to $3,101 per ton in the auction conducted last Tuesday, and correspondingly the GDT index rose 1.7%. However, the increase in dairy prices was not enough to offset the 6.3% decline that was seen in the GDT index at the end of the previous auction. Thus, the New Zealand dollar did not rally much after the data was announced. In fact, the short-sellers have now got a reason to hammer the Kiwi dollar.
In the monetary policy meeting, the Reserve Bank of New Zealand decided to leave the benchmark interest rates unchanged at 1.75%. The decision was not a surprise to the market. However, the minutes of the meeting indicated that Governor Wheeler and his colleagues wanted the Kiwi dollar to decline further to support growth. Furthermore, the minutes of the meeting indicated that the Governor and his team were willing to have a more accommodative monetary policy.
In the case of the UK, the retail sales increased 1.4% m-o-m in February, compared with a downwardly revised decline of 0.5% in the previous month. Analysts had expected the retail sales to increase by 0.4%.
Similarly, the UK Office for National Statistics had reported a 2.3% y-o-y increase in the inflation rate in February. The market had expected consumer prices to increase only 2.1%. Considering the inflation data, analysts at Morgan Stanley had cautioned their clients saying that the Pound may bounce at any time. Thus, we forecast the GBPNZD pair to resume its uptrend on the basis of the arguments provided above.
The GBPNZD pair is moving along the ascending channel as shown in the image below. After remaining in the negative region for several months, the MACD histogram has turned positive in the past few trading sessions. This indicates the possibility of a big rally in the GBPNZD pair.
By opening a long position in the GBPNZD pair near 1.7680, a trader can look forward to gaining from the probable uptrend. A stop-loss order below 1.7540 should be placed to avoid large losses. An order to book profit can be placed near 1.7980.
Investing in a high or above option would allow a binary trader to gain from the predicted uptrend of the GBPNZD pair. The position should be taken when the pair trades near 1.7680. Additionally, a time period of one week should be allowed for the expiration 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.
