EURNZD has been moving inside an ascending triangle, forming higher lows and testing the resistance at the 1.7900 major psychological level. Further upside can be possible, as the consolidation pattern formed after a strong uptrend on the longer-term time frames.
The 100 SMA is still above the longer-term 200 SMA, which suggests that bullish momentum is in play. An upside break past the resistance could spur as much as 800 pips in gains, which is the same size as the triangle formation.
Stochastic is moving up from the oversold area, indicating that buyers are taking control of price action. RSI, however, is heading down so another test of the triangle support at the 1.7650 area could take place.
EURNZD Fundamental Factors
The RBNZ just cut interest rates this week from 3.00% to 2.75%, citing the downturn in commodity prices as potential risks to growth. Governor Wheeler mentioned that further easing could be possible, which opens the room for more rate cuts if necessary.
The ECB also expressed a dovish bias in their latest rate statement, with Draghi admitting that they’re open to further stimulus if the global inflation outlook worsens. However, it appears that the Kiwi is on much weaker fundamental footing since New Zealand is more directly affected by the downturn in China.
There are no major reports due from both economies for the rest of the week, leaving momentum and market sentiment as the main drivers of price action. A few top-tier reports are lined up from the euro zone and New Zealand next week, which suggests that traders might wait for these releases before deciding on a breakout direction.
The euro zone is set to release its German ZEW economic sentiment index, quarterly employment change report, and final CPI readings. Meanwhile, the bi-weekly Global Dairy Trade auction is set to take place in New Zealand then, with another drop in dairy prices likely to spur an upside EURNZD breakout.
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