EUR/NZD bulls seems to be having trouble at the moment after the recent bounce takes them to a major potential resistance area. Is it time for the bears to take back control?
EUR/NZD Hitting a Major Resistance Area?
We’ve got a price action setup to check out for all you longer-term players out there, this time on EUR/NZD as the pair forms several technical arguments in favor of the bears.
First, the pair recently saw a strong momentum move higher after bottoming out around 1.6100 in November, but having a lot of trouble breaking past the 1.6700 handle. This has actually formed a couple patterns that technical traders may take a sign bears will be back in control: 1. bearish divergence between price and stochastic indicator and 2. a rising wedge, which if formed after an uptrend, tends to signal a potential reversal ahead.
This is all happening around the 1.6700 handle, which as we can see on the daily chart above is a major area of interest that held as a major support area throughout 2021, before breaking in October. So we have a potential technical broken support-turned-resistance scenario playing out.
This technical setup is something to consider for EUR/NZD bears, especially after the European Central Bank pledged to ramp up bond purchases under the Asset Purchase Programme to soften the transition of the ECB winding down the Pandemic Emergency Purchase Programme by March 2022.
Basically, easy money policy is here to stay for the euro, which is a different than the Reserve Bank of New Zealand, who just hiked interest rates from 0.50% to 0.75% in November. As long as this monetary policy divergence remains, this may likely continue to favor the Kiwi over the euro in the medium-to-longer-term timeframes.
So, EUR/NZD looks like a solid short candidate at the moment, with a clear price invalidation area just above 1.6800 and a viable target at the previous swing low area around 1.6100. This creates an attractive reward-to-risk ratio of around 2:1, and if the Omicron variant continues to spread in Europe while New Zealand continues to keep the pandemic in check, then we could even see a move beyond 1.6100 to improve the potential reward-to-risk even further.
What do you guys think? Is EUR/NZD a sell now or are you waiting for another small bounce higher? Or are you looking for an upside break of the major resistance area?
Let me know in the comments below, and as always, remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Create your own ideas and don’t simply follow what I do.
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