With rate hike talks on the ECB table and the RBNZ decision coming up this week, I’m staying on the lookout for a potential breakout on this pair. Here are the levels I’m watching.
Long EUR/NZD Idea
Price has formed higher lows and found resistance just past the 1.7050 minor psychological level, creating an ascending triangle pattern on its 4-hour time frame. EUR/NZD is currently testing the top of the triangle and might be due for a break higher.
However, stochastic is indicating overbought conditions and looks ready to turn south, possibly drawing sellers back in. In this case, another move towards the triangle support could be in the cards, so going long at that area is also an option.
I’m euro bullish because of recent reports on how ECB policymakers are starting to talk about the path of interest rate hikes. Sources shared that officials are comfortable with the idea of markets pricing in a rate hike by mid-2019 and are more concerned about the next set of tightening moves from there.
In contrast, I’m bearish on the Kiwi because of prevailing trade war fears. Protectionist moves by the Trump administration could severely hurt the flow of commodities, and this can’t be good for New Zealand’s economy.
And with the RBNZ decision coming up, I’m also expecting policymakers to mention U.S. trade policies as a source of uncertainty. In their previous statement, the RBNZ already pointed out that inflationary pressures have been subdued and that they project the Kiwi to depreciate.
Apart from that, the likely FOMC interest rate hike ahead of the RBNZ announcement could also bring some risk-off vibes in the mix. Recall that global tightening prospects lead market participants to price in weaker business and consumer activity down the line, weighing on higher-yielding assets and currencies.
I’m looking to go long either on an upside break from the triangle top or a test of the support. For the former, I’d enter past the previous spike at 1.7134 and for the latter, I’d probably hop in around 1.6900 with a stop below the previous dips. What do you guys think?
See also: Q4 2017 Trading Performance Review
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