EURNZD Reversal Formation (Mar 26, 2015)

EURNZD’s recent downtrend might soon be over, as the pair formed a reversal pattern on its 4-hour chart. The pair has yet to break above the resistance levels around the neckline of the double bottom and the longer-term exponential moving average before confirming the uptrend.

Stochastic is already indicating overbought conditions, which suggest that buyers are already exhausted. This could mean another quick selloff, possibly until the short-term EMA, which might hold as a dynamic support area.

On the other hand, a strong break past the neckline around the 1.4600 major psychological level could bring in more buying pressure and lead to a 300-pip climb, which is the same height as the chart pattern. But if the resistance levels hold, price could make another move lower to the previous lows at 1.4300.

The path of least resistance is still to the downside, although profit-taking at the end of the month and quarter might lead to price rallies until the next couple of weeks. With that, EURNZD could be in for a much larger correction from its longer-term selloff.

Earlier in the week, the euro zone printed decent PMI readings from France and Germany. Yesterday, the German Ifo business climate came in better than expected and confirmed Draghi’s claims that a sustained recovery is taking hold in the region. No other event risks are lined up from the region today.

There are also no event risks from New Zealand today, although risk sentiment seems to be playing a major role in determining price action for the commodity currency. Data has been weak recently, as the trade balance fell short of expectations for February while the previous month’s reading has been downgraded.

With that, there’s also a strong potential for an upside break past the double bottom neckline and a likely rally up to the 1.4900-1.5000 levels if that takes place.

By Kate Curtis from Trader’s Way