Let’s take a look at EUR/NZD, which could be on the verge of a longer-term consolidation break. Will traders take the pair lower on a downside break?
Longer-term Consolidation Break in EUR/NZD?
Today we’re checking out EUR/NZD, on the possibility that fundamentals may finally move the market out of a longer-term range and into a new trend lower. Over the course of 2021, EUR/NZD has spent most of its time between 1.6600 – 1.7100, but with today’s announcement from the Reserve Bank of New Zealand, that range may possibly end.
Earlier in during the Asia session, we got news that the RBNZ decided to raise the short-term cash rate from 0.25% to 0.50%, with more rate hikes to come. Now, the market didn’t react favorable for NZD bulls, likely due to the idea that this outcome was highly expected and already likely priced into the New Zealand dollar. So it shouldn’t be a surprise that we’re seeing some profit taking in NZD for now, but longer-term, this will likely bring on more support for the Kiwi, especially as rates do rise.
As far as Europe and the euro, we’re seeing the recovery starting to lose momentum in the business sector due to supply constraints, and issues rising with high inflation. We’ve also got an energy crisis brewing in Europe, that could certainly be a big longer-term impact on economic growth. So, the European Central Bank is in a tough spot on whether or not to start raising rates to combat inflation, or keep’em low to support slowing economic conditions. Eurozone ministers have recently said that they expect inflation to slow in 2022, so it’s likely rates will stay low for now, making the euro a potential longer-term under performer against currencies with rising rate regimes.
With a potential divergence in monetary policy brewing, that means the longer-term odds favor the Kiwi over the euro, as long as broad risk sentiment continues to lean net positive. With that outlook, we’ll be watching over the next few weeks for a break of the rising ‘lows’ pattern marked on the four hour chart of EUR/NZD above. If that scenario plays out, then technical momentum players may start to jump in along with fundie players.
Or if the market continues to see NZD weakness short-term, we’ll be watching the falling ‘highs’ trendline for bearish reversal patterns before considering a short position, as that could draw in technical and fundamental traders as well.
What do you all think? Is EUR/NZD set to start a run to the downside over the next few months? What risks do you see that could benefit the euro over that time period?
