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What’s up forex friends! EUR/NZD is set to have top tier events come through in the next week, making this bearish setup in a downtrend one to watch. Let’s go!

Resistance Retest on EUR/NZD?

EUR/NZD 4-Hour Forex Chart
EUR/NZD 4-Hour Forex Chart

On the four hour chart above of EUR/NZD, we can see the pair has been in a slow grind lower over the past month, crawling lower only a few of hundred pips from roughly 1.7000 to its recent swing low just under 1.6700. This pair is in a longer-term trend lower since October, but it seems like volatility is not what it used to be so far in 2021.

But the environment may change in the next week or so as we’ll get the latest European manufacturing PMI updates and the latest monetary policy statement from the Reserve Bank of New Zealand next week. Both events have been market movers for their respective currencies, so the odds are pretty good we’ll see some action soon.

Our expectations are that the RBNZ may sound more optimistic at this meeting as economic data continues to improve. NZ’s employment situation surprised us positively last week and inflation expectations continue to rise just to name a few pieces of the economic puzzle that makes the argument that the RBNZ is not likely to provide additional stimulus any time soon (i.e., potentially bullish event for the Kiwi).

On the other side, the euro may see a negative turn in business sentiment next week as Germany and other European countries continue to lockdown, with possible lockdown extensions coming to prevent the spread of new coronavirus variants. Recent looks at this data have been arguably net negative (Service sector leads further contraction of eurozone economyDownturn in German services activity continues in January amid tighter lockdown measuresGerman manufacturing new orders were down 1.9% m/m in December, etc.) so the odds are pretty good euro bulls may be disappointed once again.

So, a bearish lean may be the way to play EUR/NZD, and with this bounce higher, we’re watching the pair to see if it can get up to the area of previous consolidation (between 1.6850 – 1.7000) / falling ‘highs’ pattern. If so, we’ll see if we get the scenario above to play out and for bearish patterns to form under that falling trendline before taking action.

What do you all think? Are you watching EUR/NZD for a potential longer-term short position trade? Or do you think the falling ‘highs’ will break? Let me know in the comments section below!

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