Sharp decline in German factory orders turn Euro weaker

On the basis of a high debt to GDP ratio of China and probable defeat of Marine Le Pen in the second round of the French election, we had recommended going long in the EUR/AUD pair at 1.3680, with a profit target of 1.3880.

To binary option traders, we had suggested purchasing a high or above contract with an expiry date of March 3rd . The pair closed at 1.3914 on the suggested date, thereby resulting in profit from both the recommendations. We now forecast a correction from the level of 1.4140, due to the reasons mentioned below.

During the monetary policy meeting held on Tuesday, the Reserve Bank of Australia left the overnight lending rates unchanged at 1.50%. The decision was very much on the expected lines. However, analysts were closely watching for the statement on the economic outlook. The RBA’s governor Philip Lowe stated that the economy is improving, and the business and consumer confidence is picking up. Lowe also opined that the Australian inflation and growth targets would be met under the current economic conditions.

Macquarie Group

Considering the possibility of three more rate hikes in the US this year, the central bank governor does not foresee any need for rate cuts in Australia. Lowe also stated that the current rally in the commodity prices would increase the net revenue of Australia. Notably, the RBA governor pointed out an increase in non-mining investments. The price of iron ore, which is the largest export revenue earner for Australia, retreated to a one month low of about $89. The commodity touched a high of $100 per ton in mid-February. Still, the current level translates to nearly 12% gain so far this year.

Australia’s other main export revenue earner, coking coal, is making a comeback. After declining to a low of about $150 per ton three weeks before, the price of coking coal has increased to about $163 per ton.

In Europe, Destatis announced that the German factory orders declined 7.4% m-o-m in January. Analysts anticipated a decline of only 2.5%. In the previous month, the seasonally adjusted factory orders increased 5.2% on m-o-m basis. Thus, on the basis of the economic data, we can anticipate the EUR/AUD to undergo a short-term correction.

The EUR/AUD pair is expected to face resistance at 1.4140. The momentum indicator has reached the point where it has turned several times earlier. So, considering the minimum resistance on the downside, a trader can anticipate the pair to decline and test the support level of 1.3760.

A Forex trader can establish a short position to gain from the probable downtrend of the EUR/AUD pair. The position can be opened near 1.4140. A stop loss order can be placed above 1.4240 to limit losses from unexpected reversal. The short position can be closed near 1.3900.

A binary trader can bet on a downtrend by purchasing a low or below contract that expires on or around March 20th . To increase the success rate, it is advisable to purchase the contract when the cross trades near 1.4140.