My, my! It’s been a crazy week for the euro and the Kiwi, huh? Even though EUR/NZD popped higher in the past few days, I think the longer-term downtrend might stay intact so here’s my swing trade idea.
As Big Pippin mentioned in today’s edition of Daily Chart Art, EUR/NZD appears to be making a large correction on its 4-hour time frame, possibly pulling back to the falling trend line connecting the pair’s highs since the start of the year. I zoomed in a little bit to use the Fib tool on the latest swing high and low, trying to see if any of the levels line up with other inflection points.
Aha! The 50% Fibonacci retracement level coincides with a former support zone and the 1.5800 major psychological level. Stochastic is already indicating overbought conditions but hasn’t crossed down yet, suggesting that there may be enough buying pressure to lead to a test of the 50% Fib later on.
Germany is set to print its GfK consumer climate and IFO business climate reports today and small improvements are expected. In that case, EUR/NZD could still make a move higher and reach my target entry area at 1.5800.
From a fundamental standpoint, I think the selloff might resume as traders flock back to the higher-yielding Kiwi in pursuit of positive carry. Even though the RBNZ signaled a pause in its rate hike spree, they still offer the highest benchmark rate among the major central banks at 3.50%. Meanwhile, demand for the euro could still be dragged lower since the ECB recently cut several interest rates and is leaving the door open for further easing.
I’m looking to enter at the 1.5800-1.5900 area but I will wait for reversal candlesticks to form before jumping in. I plan on setting a wide stop above the 1.6000 major psychological level since I’d like to hold on to this as a swing trade, and I’ll be aiming for new lows below the 1.5400 area.
I’ll keep you posted when I set my entry orders so y’all better stay tuned!
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