GBPNZD recently broke below a key support level around the 2.0400 major psychological mark and might be ready for an FX correction wave before heading lower. Price could pull up to the 38.2% to 50% Fibonacci retracement levels, which are close to the broken support.
If these hold as resistance, GBPNZD could make its way back down to its recent lows above 2.0000. Increased selling pressure might even lead to the formation of new lows. on the other hand, a higher FX correction could reach until the 61.8% Fibonacci retracement level, which might be the line in the sand for any gains.
FX Correction Levels
A break past the 61.8% Fib level or the 2.0500 major psychological resistance might be an early signal that price is starting to reverse and that an uptrend might take place. In this case, the pair could climb up to the next resistance level around 2.0800.
Stochastic is almost in the overbought area, hinting that pound bulls are getting exhausted and that selling pressure could build up. Once the indicator turns down from the overbought region, the FX correction could gain more momentum heading south.
The path of least resistance is to the downside, as the New Zealand economy seems to be gaining traction in its recovery so far. Dairy auctions have shown consecutive gains in prices, which could be good for the country’s export industry and milk production sectors. On the other hand, the latest services PMI from the UK reflected a slower expansion in the industry, which means that it could have a lower contribution to overall economic growth.
The event risk for this FX correction setup is the BOE interest rate decision, which might indicate an upbeat assessment of the economy. After all, Governor Carney has been repeating that the downturn in inflation would support consumer spending and business expansion, which would be good for overall growth.
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