EUR/NZD has been in a steady forex trade setup downtrend, as the ECB rate cut has weighed on the euro’s value. At the same time, the recent RBNZ rate hike is keeping the New Zealand dollar afloat against its major forex counterparts.
The pair has just come off a test of channel resistance near the 1.5625 levels. Stochastic is indicating that a bearish divergence is playing out, which means that there’s enough momentum to sustain a forex trade setup drop until the bottom of the channel around 1.5530. Shorting at market with a stop above 1.5625 and a target at 1.5530 could yield a 1:1 return on risk for a quick forex trade setup.
Forex Trade Setup and Outlook
Earlier this week, Germany and France printed weaker than expected manufacturing and services PMI readings. In addition, France has reported a deeper contraction in both industries while Germany has shown a slower pace of expansion. Overall, euro zone manufacturing and services PMI readings fell short of consensus as well.
This underscores the possibility that the ECB could ramp up its easing efforts sooner or later. In their latest rate statement, they already cut interest rates and prepared measures to accommodate additional LTRO should they decide to implement those.
Meanwhile, the RBNZ is still on track to hike rates in their July meeting, which supports the demand for the Kiwi in the meantime. Data from China, as shown by the HSBC flash manufacturing PMI and the CB leading index, have shown improvements and continue to keep risk appetite strong. In this case, EUR/NZD could stay on track to move towards the bottom of its falling range with a possibility for a breakdown.
If EUR/NZD breaks below the channel support, a longer-term selloff might be in the cards, one that might last below the 1.5500 major psychological area.
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