The New Zealand dollar takes center stage this week with the latest RBNZ monetary policy meeting ahead. And EUR/CAD makes the watchlist with a textbook technical setup in the works.
First up, we’ll be taking GBP/NZD for another spin in the watchlist this week as the pair continues to consolidate after a strong momentum move lower in May. We’re actually seeing a wedge like pattern form on the four hour chart above, which likely means traders are standing by for a major catalyst and reaction before choosing the next direction to move in.
And it’s likely we’ll get a shot of volatility soon with the aforementioned RBNZ monetary policy meeting this week for Kiwi traders to chew on, while Sterling traders will likely take its cues from the Bank of England’s latest inflation report. The race for British Prime Minister is also heating up with two candidates remaining, so any news there may get the pound moving as well.
If the pair breaks out to the downside, then the 1.9100 area will likely the first line of defense for the bulls, but given the overall downtrend and depending on the RBNZ, this could turn out to be a big downside mover once that area is broken. On an upside break, you have an equally interesting potential return-on-risk given that the previous swing high is over 600 pips from current levels, and that the daily average true range is roughly 120 – 130 pips at the moment.
After doing your homework to get ready for the RBNZ event you decide to be a Kiwi bull, then this channel lower in AUD/NZD might be the pair for you to watch closely.
Back in April, the pair topped out around the 1.0700 handle, and since then AUD/NZD has been in a steady grind lower to form a descending channel pattern that recently tested (and held) the 1.0500 major psychological area. It’s currently trading closer to the bottom of channel, so if this week’s catalysts sends the pair higher to the falling ‘highs’ area, then a short play should be strongly consider if the market thinks the RBNZ may not cut rates as much as expected this year and we see reversal patterns form around 1.0550 up to 1.0600. It’s likely going to be very quiet for the Aussie the rest of the week in terms of economic catalysts, so technicals may dominate for the rest of the week.
Last but not least, for those looking to stay away from the RBNZ event, this consolidation pattern on EUR/CAD should be right up your alley. The bears have shown the bulls no mercy around 1.5100 – 1.5150 all year, while the bulls have been able to turn the table on the bears every time the 1.4900 to 1.4950 area is tested, easily forming a ranging pattern and a strong area of interest in the middle around the 1.5000 major psychological level.
We do have mid-tier catalysts on the way from Europe (CPI data) and Canada (monthly GDP) to potentially get this pair moving this week, so be on the lookout or set your price alerts for the top and bottom of the ranges. Once retested and evaluated, don’t forget that the daily average true range is around 70 – 80 pips, which is roughly half the distance from the top to the bottom, making for very attractive potential reward-to-risk scenarios.