The New Zealand dollar could see a pick up in volatility with the latest monetary policy decision coming soon from the Reserve Bank of New Zealand. That makes this trend in EUR/NZD for potential continuation / reversal setups.
Before moving on, ICYMI, today’s Daily London Session Watchlist looked at an opportunity forming on GBP/JPY ahead of U.K. unemployment data, so be sure to check that out to see if there is still a potential play!
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What to Watch: EUR/NZD
Things could get very lively for the New Zealand dollar very soon with the latest interest rate and monetary policy decision coming soon from the Reserve Bank of New Zealand (RBNZ). Expectations are for the RBNZ to hold the official cash rate at 0.25%, but there is a small possibility of at rate cut thanks to last week’s weaker-than-expected labor market numbers. It’s also expected that the RBNZ will unveil a Funding for Lending program that would allow RBNZ to offer lower retail lending rates.
So there are a few scenarios and potential reactions to watch out for, but one likely scenario is for the Kiwi to continue its rally if all expectations are confirmed (i.e., a buy-the-rumor, sell-the-news scenario). If the RBNZ holds and the Funding for Lending program is the extent of their announcement, we could see the Kiwi resume its broad uptrend this month after today’s consolidation behavior.
In that scenario, EUR/NZD is a likely pair to continue its trend, especially in this risk-on environment and after net negative updates from Europe in today’s session. Watch out for bearish reversal patterns at the Fibonacci retracement area marked on the chart, up to the falling ‘highs’ pattern that intersects with the Fibs around the 1.7450 area.
If we actually see a rate cut and/or an overly dovish outlook from the RBNZ, the Kiwi could take a hit, especially after the bullish move we’ve seen over the past week. Given the daily average true range of around 140 pips, we could see a move higher in the pair in such a scenario, enough to take EUR/NZD up to the major psychological area of 1.7500.