GBPNZD Ascending Triangle (May 21, 2015)

GBPUSD has been forming higher lows and finding resistance at the 2.1200 to 2.1300 levels, creating an ascending triangle pattern on its 1-hour chart. Price is currently testing the top of the formation at the moment and may be due for an upside break since stochastic is nearing the oversold zone.

A break higher could yield around 600 pips in gains, which is roughly the same height as the chart pattern. On the other hand, if the triangle resistance keeps gains in check, the pair could head back to the triangle support at 2.1500.

The short-term exponential moving average is treading above the long-term exponential moving average on the 1-hour chart, indicating that the rally is likely to carry on. A downward crossover, however, might indicate that a selloff could take place.

The path of least resistance is to the upside, as the BOE is closer to hiking rates compared to the RBNZ. Although the UK economy fell in deflation for April with its negative headline CPI, policymakers are hopeful that this drop in price levels would translate to stronger spending and growth. In contrast, the New Zealand economy is still facing a lot of weaknesses, particularly in the dairy sector, and could see an interest rate cut soon.

Event risks for this trade setup today include the release of the UK retail sales report, which might indicate a 0.4% rebound from the previous 0.5% decline. Stronger than expected data could support the BOE’s upbeat claim and remind traders that the UK economy could see better growth figures later on. There are no reports lined up from New Zealand today.

A couple of speeches from BOE Governor Carney are scheduled tomorrow and these could provide another boost for GBPNZD if the central bank head retains his upbeat assessment and outlook for the UK economy.

By Kate Curtis from Trader’s Way