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Since bottoming in February 2017, EURNZD has produced a bullish trend structure overall. Yet since falling 5.5% from the December high it has appeared a little hesitant to re-test it. That said, we think pressure could be building for bullish momentum to return.
Firstly, EURNZD continues to respect the bullish trendline from the 1.4589 swing low. Admittedly it was penetrated with a spike low in June and there have been some minor crossovers in Feb this year, but it supports the bullish structure overall.
Dominant momentum is clearly bullish and we now hover just beneath the 2018 high of 1.7096. Taking the dominant momentum into account we favour the next major break to be bullish.
Zooming into the daily chart we note that volatility has subsided ahead of today’s ECB meeting. This tends to be the case ahead of important events, but it also serves as a warning that volatility is to return in due course.
Yesterday provided an inside day (price compression) which means we are now seeking range expansion and a break above resistance.
If we don’t see range expansion above resistance, then it’s a no trade for us. And whilst we favour a bullish break, a small bearish clue came in the form of a hanging man reversal on Tuesday. That it hovers beneath the 1.7096 high and spiked lower suggests it may be trying to carve out a top. And if price is to roll over beneath 1.7096 we can look back and say “yes, that was a reversal warning”.
However, it can be easy to forget that ‘reversal’ candles don’t always turn out to be so. If price instead breaks to new highs, we could just as easily look back with the advantage of hindsight and see it as a bullish hammer.
For now EUR crosses are on the backburner until today’s ECB meeting is out of the way, which will allow us to see if the near-term bullish structure holds and avoid unnecessary whipsaws which often come with such events.
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