Euro to Strengthen after Draghi’s Hint at Reducing Stimulus

EuroEmmanuel Macron’s victory in the recently held elections and narrowed spread between German and French government bond put the Euro currency in a better position against the Australian Dollar. From a low 1.4800, currency cross has rallied to a high position of 1.5050. We are eagerly speculating that the currency pair EUR/AUD which is currently trading at 1.4190 levels will increase in the coming times. The reasons for the same are discussed below.

For the past several months, traders were forecasting the possibility of tapering the bond purchases by the ECB because there were concrete signs of economic recovery in Euro Zone.

Mario Draghi who is the President of ECB while speaking at the European Central Bank Forum on Tuesday said that bond purchases might be trimmed in the future. He further commented that EuroZone is in need of a stimulus but not like earlier. If the interest rates are hiked, Euro will become attractive for the investors.

ECB Forum on Central Banking – Mario Draghi Introductory speech

Marco Valli who is an analyst at UniCredit Bank AG commented on Draghi’s statement by saying that conditions are extremely good for tapering of bond purchase in the meeting that is going to held in September. UniCredit is of the opinion that ECB will try to slow down the purchase of bonds in a step by step manner and make sure that the stimulus program comes to a close by the end of 2018. It is likely that the Euro will remain bullish for the short term after the speech from Draghi.

The Australian Dollar gains support from the price of its top 3 commodities namely natural gas, coking coal and iron ore. Compared to $95 in the month of February, the price of iron ore has nearly halved to $54 per tonne at the moment. In this regard, Morgan Stanley has slashed its price outlook for iron ore. According to the global investment research firm, they are speculating that the price of iron ore to reach $50 per tonne in Q3 which is down by 23% from its earlier estimate. For the last quarter that ended in June 2017, Morgan Stanley speculates the price of iron ore to be around $55 per tonne which is a 15 percent reduction from its prior estimate.

In a similar manner, coking coal which is regarded as the main constituent used by steel mills has reduced to 12 months low figure of $139 per tonne. In 2016, the price registered the highest figure of $330 per tonne. Even the July futures of natural gas is currently trading less than $3 per MMBtu because the summer waves are expected to start from 2nd week of July in the United States. Hence, all these factors clearly favour a rally in the currency pair of EUR/AUD.

Technically, this currency pair has a support at 1.4880 and we can expect EUR/AUD to remain bullish. Currently, the resistance level is at 1.5170.

EURAUD Pair June 29th 2017

EURAUD Pair June 29th, 2017

In the currency market, we recommend all the traders to open a long position in the currency pair around 1.4910 and place stop order below 1.4780. If the Euro currency strengthens, then the profits can be booked around 1.5170.

Similarly, in the binary market, we advise all the traders to invest money in a call option and set the expiry date for 7 days. The traders should target the entry around 1.4910.


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