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Daily Observations: GBP/NZD  Readies for Breakout Higher

Daily Observations: GBP/NZD Readies for Breakout Higher

Christopher Vecchio, CFA, Senior Strategist

With USD-pairs in tumult, the GBP-crosses may be the simplest way to find exposure to a currency with a hawkish central bank. Ideally, we'd be looking to pair the GBP with a currency whose fundamental backdrop is eroding, and immediately three pairs come to mind: GBPAUD, EURGBP, and GBPNZD. Our focus today is on GBPNZD.

GBPNZD Daily Chart: June 2015 to Present

GBPNZD may be on the verge of its next leg up in its multi-month channel. The recent consolidation over the past three weeks has resulted in an ascending triangle after an uptrend, a potential bullish continuation pattern. While ascending triangles can occur at the bottom of a downtrend (signaling a reversal), regardless of where they occur, ascending triangles are usually bullish patterns.

Confirming the bullish potential higher are momentum indicators. With Slow Stochastics and MACD trending higher on the H4, daily, and weekly timeframes (and in their respective bullish territories), "full time frame continuity" exists that favors a bullish move shortly.

With the Bank of England offering more hawkish commentary of late and with the Reserve Bank of New Zealand reigniting its dovish policy burner, the fundamental bias may be higher in the pair over the near-term. In context of the combined fundamental and technical influences present, there's sufficient fuel to see follow through on a GBPNZD breakout to the topside.

Trade Idea: Long GBPNZD

Entry: 2.4630 or above

Stop: 2.4040 or below

Risk: -590-pips (or more depending upon exact entry/stop)

Target #1: 2.5200 (channel top one-week from date of publication) (+570-pips)

Target #2: 2.5550 (ascending triangle measured move) (+920-pips from 2.4630 entry)

Read more: USDOLLAR Index Reverses FOMC Losses; Is USD/JPY Risk’s Bellwether?

--- Written by Christopher Vecchio, Currency Strategist

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.