The BOE decision is lined up this week, and we just might see profit-taking even after they hike rates.
If that’s the case, sterling could be poised for a round of weakness against the Kiwi, especially if New Zealand prints a rebound in inflation expectations.
Do you think this would be enough to spur a downtrend for GBP/NZD?
Before you check out the setup, make sure you know all of last week’s major market movers as well as this week’s potential market catalysts!
After seeing another round of stronger-than-expected CPI readings, the U.K. central bank might have no choice but to hike interest rates by 0.25% again.But if policymakers hint that they are looking to pause their tightening cycle soon, we might just see the pound unwind most of its recent gains.
GBP/NZD has already formed a head and shoulders pattern on its 4-hour time frame to hint that a reversal is possible.
Of course, the pair has yet to break below the neckline support at the key 2.0000 mark to confirm a selloff. If that happens, the price could tumble by roughly the same height as the chart pattern or 400 pips.
Technical indicators aren’t so convinced yet, though, as the 100 SMA is still above the 200 SMA to reflect upside momentum. Also, Stochastic is pulling higher from the oversold area to suggest that buyers are regaining the upper hand.
Still, I’d keep an eye out for a break below the 200 SMA dynamic support, which happens to line up with the neckline, since this would be an early signal of a shift in momentum.
If you’re hoping to catch a breakdown, just make sure you take into account that GBP/NZD moves an average of 156 pips per day when it comes to setting entries and exits!