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EUR/NZD is back at a major support area, so the question now is whether or not another bounce is ahead?

With the latest monetary policy statement from the Reserve Bank of New Zealand ahead, we’ve definitely got setup options for both the bulls and the bears to watch out for!

EUR/NZD Short-term Bottom Break or Bounce?

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

It’s been a pretty choppy Summer for EUR/NZD traders, which is probably a great thing if you’ve been fading the tops and bottoms of the range between 1.6700 – 1.7000. And we could be seeing another opportunity for bulls to play the range as the pair retests the 1.6700 major psychological area, and we can see a potential fakeout in the works after last week’s break failed to gain momentum.

But we’ve gotta be aware of a major event catalyst coming next week, the latest monetary policy decision from the Reserve Bank of New Zealand. Expectations are that we may see a rate hike of 0.25% next week, and possibly further rate hikes to take the short-term rate to 1.00% before the end of 2021. And based on Kiwi’s price action these past couple of weeks, this scenario may have already been priced into NZD pairs.

Now, we may get surprised at this upcoming statement thanks to the recent developments with the covid-19 pandemic, where the Delta variant spread has accelerated in recent weeks. This may cause the RBNZ to sound cautious on their economic outlook in their upcoming rhetoric, which could change rate hike expectations and the short-term direction of the New Zealand dollar.

With these latest pandemic developments and expectations of a global growth slowdown as precautionary protocols are being re-introduced, the odds are probably favoring a short-term bearish turn for the Kiwi on the event if the above scenario plays out. That means the support area on EUR/NZD is likely to hold once again and a short-term bullish move could be in the cards, at least on profit taking from the recent momentum move lower.

Longer-term, the Kiwi is likely to outperform the euro on monetary policy divergences (the ECB is expected to continue to hold a “persistently accommodative monetary policy stance” for some time), making any bounce in EUR/NZD an opportunity for sellers to get in the longer-term trend lower. The 1.6900 – 1.7100 area has been a major resistance area and it’s likely that another retest there would draw in both fundamental and technical traders, barring any extremely bearish rhetoric from the RBNZ next week.

What do you all think? Is this a short-term buying opportunity to play the bottom of the range in EUR/NZD or will the support area break? Let me know in the comments section below!

This content is strictly for informational purposes only and does not constitute as investment advice. Trading any financial market involves risk. Please read our Risk Disclosure to make sure you understand the risks involved.