Euro Turns Weak after a Dovish Stance by ECB

Euro CurrencyIn the past week, the EUR/NZD currency pair rose by 500 pips to trade at 1.7040 levels. The New Zealand Dollar turned weak due to drop in the dairy products price. On the other hand, Euro was on the uptrend due to current account surplus and upbeat trade balance. However, we are of the opinion that Euro would decline against New Zealand Dollar in the coming days and the reason for the same is discussed below.

Policy meeting was held in October where ECB announced that the asset purchase program would be shut down by the end of September 2018. It further commented that quantum of debt purchase would be curtailed to 30 billion Euros per month, from January 2018 from the existing 60 billion Euros per month.

The Euro currency has turned out to become weak because of two critical reasons. First of all, when the policy was announced, ECB said that the assets purchase would be increased or duration will be extended if there is such need. Secondly, ECB stated that it would maintain the existing low-interest rate scenario for an extended period if the inflation rises to a dangerous level.

Hann-Ju Ho who is an economist at the Lloyds Bank is of the opinion that interest rate would only increase after 2nd quarter of 2020 and not before that. Euro would be under a lot of pressure in the coming days due to the dovish stance maintained by ECB.

Core Finance

The newly formed coalition government in New Zealand has made plans to reform the Reserve Bank of New Zealand. According to the plans, the rate-setting process of Reserve Bank of New Zealand would be modernised and commented that majority of risk might arise from such a move is already priced in the currency.

The New Zealand Dollar has lost 5 percent on the trade-weighted basis since election results are announced. Derek Halpenny who is European head of global markets research at MUFG is of the opinion that Kiwi dollar decline is limited. Hence, there would be a decline in the EUR/NZD currency pair in the coming days due to developments in the monetary policy of New Zealand.

EURNZD Pair Oct 27th 2017

EURNZD Pair Oct 27th, 2017

On a technical level, the RSI indicator is in the overbought region. Likewise, the stochastic indicator is declining from the overbought zone. The currency pair is in the upper band of linear aggression channel. Hence, a downtrend in EUR/NZD is speculated in near future.

Traders can open a SHORT position in the currency pair to make profits from this possible downtrend. The short position can be opened near 1.7040 and place “stop order loss” above 1.7140. The SHORT position can be covered near 1.6550.

The binary options traders can invest in a put option and select the expiry period of November 3, 2017. The put option can be opened when the currency pair is trading near 1.7040.

Rich Archer

Rich Archer

Hi, my name is Rich Archer. I am living in London. Welcome to Binary Manual. Reach to Binary Options broker reviews and market news here.

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