Upcoming French Election Keeps the Euro Weak

Upcoming French Election Keeps the Euro Weak
April 19, 2017

 
The strong ZEW economic sentiment data from the Euro zone coupled with poor US retail sales and inflation data aided a rally in the Euro dollar in the past few trading sessions. The Euro was particularly strong against the Aussie, a commodity currency, mainly due to a sharp fall in the price of iron ore. However, considering the below mentioned issues faced by the Euro zone, we anticipate the EURAUD pair, which is currently trading at 1.4120 to decline in the days to come.

The price of iron ore declined to a low of $64.67 per ton on Monday. This kept the pressure on the Aussie. However, it should be noted that the Resources and Energy report published by the Australian Department of Industry, Innovation and Science indicate that the Federal government revenues from the export of energy commodities would hit a high of $215 billion in 2016-2017 as well as 2017-2018 periods. Notably, the report indicates that even with a forecasted price of $55 per ton in the fourth-quarter of 2017, the iron ore export revenue would reach a record high. Additionally, a surge in the export of LNG (Liquified Natural Gas) is also expected to boost the overall revenues. The LNG shipment, which increased 40% last year, is expected to double in the next three years. Thus, the Aussie is not expected to weaken due to a drop in the price of iron ore.

The Euro zone, on the other hand, is grappled by political uncertainty. The upcoming election in France is expected to keep the Euro dollar under pressure due to an increase in the support for Marine Le Pen, a Presidential candidate with anti-EU views. The Euro dollar is also expected to remain weak due to the prevailing dovish stance of the ECB. Thus, fundamentally, the EURAUD pair is expected to resume downtrend soon.

The self-illustrative chart provided below indicates firm resistance for the EURAUD pair at 1.4260. An overbought scenario is also shown by the momentum indicator. On the downside, support exists at 1.4020.

EURAUD - Technical Analysis - 19th April 2017

By opening a short position in the EURAUD pair in the Forex market, a trader can benefit from the downtrend. The entry can be made near 1.4260, while the exit is recommended near 1.4020. A stop loss order above 1.4350 is a must to keep a control over losses that may arise due to speculative positions.

The forecast of a downtrend can be used to trade in the binary market by investing in a put option. When the EURAUD pair trades near 1.4260, a contract expiring on or around April 27th should be bought.

Sammy

Sammy

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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