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GBP/NZD just gave us a big bearish candle after breaking above a major resistance area. Is that a signal for the bulls to buy in or is it a fakeout that’ll likely draw in the bears at a good price?

GBP/NZD Upside Fakeout?

GBP/NZD 4-Hour Forex Chart
GBP/NZD 4-Hour Forex Chart

GBP/NZD could be our next big mover this week after yesterday’s watchlist pair, EUR/NZD, already made a drop lower.

It’s got the same catalyst from New Zealand, the quarterly CPI update, to potentially get the Kiwi moving, and on the Sterling side of the pair, the upcoming U.K. retail sales and manufacturing PMI data may get traders flowing on the British pound.

From a price action standpoint, the pair just finish a strong rally from around 1.8630, a counter trend move that brought it back to a very strong area of interest. The area around the 1.9100 handle has recently been a strong resistance level since December, but before that, that area was a magnet for buyers to take the pair higher short-term. The question now is whether or not the bulls or bears will take control?

Well, with expectations of the NZ CPI data set to disappoint while U.K. will likely be mixed, choppiness at major psychological level is the currently likely outcome.

But the longer-term downtrend may resume if we see a better-than-expected read from NZ on CPI, and if U.K. PMI’s disappoint. The trend can continue to be friends to GBP/NZD bears, especially if broad risk sentiment continues to lean positive as it did today.

That’s the likely scenario to play out for now, but if we do see surprises, that upside fakeout break we saw this week may not be a fakeout after all. If there is a bullish catalyst for GBP/NZD, then the setup to watch for is a retest/bullish reversal patterns at 1.9100. That behavior would likely draw in the bulls, especially if we see a turn in the pandemic situation in the U.K. (i.e., falling death rates / no further lockdown extensions).

What do you all think? Are you watching GBP/NZD for a potential trade? If so, what’s your directional bias and entry strategy? Let me know in the comments section below!

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