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Bullish EUR/NZD After RBNZ Shocks With Dovish Rhetoric, EUR Bounce

Bullish EUR/NZD After RBNZ Shocks With Dovish Rhetoric, EUR Bounce

Tyler Yell, CMT, Currency Strategist

The BIG Idea On Trading EUR/NZD Higher:

The Reserve Bank of New Zealand was reserved when it came to a positive outlook with RBNZ Assistant Governor and chief economist John McDermott saying, “We’ve been pushed nearer to that trigger point” of cutting rates.

Traders are likely looking at the big move today that is NZD/USD moving down through $0.67 overnight per NZD. The market is set to close below the trendline drawn off the 2009 low. However, traders always need to be looking around the corner, which is showing signs of bullishness or tired bearishness

Traders should watch for a bullish reversal on the EUR playing out best against NZD.

Possible Fundamental Trigger: EUR German GDP

  • Point to Establish Short Exposure: On pull-back or at market
  • Spot: NZ$1.7445 per EUR
  • Target: NZ$1.8000 per EUR (Lower high in September 2015)
  • Invalidation Level: Close <NZ$1.7125 per EUR (August opening range low)

If you are looking for other strong trading ideas, you may enjoy our FREE Trading Guides

The BIG Picture on Bullish EUR/NZD:

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Chart Source: Pro Real Time with IG UK Price Feed. Created by Tyler Yell, CMT

The spot price of EUR/NZD has recentely broken above the median line of the broad channel on the recent dovishness of the RBNZ. The break higher aligns with the broad uptrend that was re-established after the higher-low in February 2017.

After six months of consolidation from late 2017 to June, the uptrend looks to be re-affirmed and worth trading on the bullish side.

Institutional Positions May Show Value To EUR/NZD Long

Sentiment extremes can be an excellent time to get into a trade though risk must be managed well. Looking to the chart from Paul Robinson's article, you can see that institutional positioning per the CFTC's Commitment of Traders shows one the most bearish readings on EUR in the last 52-weeks.

EUR weakness is a mirror image of the 15 consecutive weeks of insitution's growth in long USD positions that has caused a 1-year bullish sentiment extreme in USD (see Paul's article for more 52-week sentiment ranges.)

Such an extreme may prove that we may be in a relatively good time to enter into a long EUR trade with a clear invalidation point or a stop loss level on the bet that EUR weakness is may have seen its peak.

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Source: CoT – USD Sees Net Speculative Buying for 15th Week in a Row

EUR/USD has fallen on the view of ‘US Exceptionalism’ that has taken positioning to a 52-week extreme. However, we’re seeing a positive surprise of EU data relative to expectations since June, which could see a relative shift from outright bearishness to short-covering that could help this trade.

Naturally, we’re looking at EUR/NZD, which would be pitting the EUR against a significantly weaker NZ Dollar than the US Dollar as evidenced by this chart.

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Chart Source: Pro Real Time with IG UK Price Feed. Created by Tyler Yell, CMT

The breakdown in NZD/USD could be the start of a broader shift of central banks moving from hawkish to neutral to, in some cases, dovish as we saw with the RBNZ.

Happy trading!

Want More Tools To Boost Your Trading?

Are you looking for longer-term analysis on the U.S. Dollar? Our DailyFX Forecasts for Q3 have a section for each major currency, and we also offer an excess of resources on USD-pairs such as EUR/USD, GBP/USD, USD/JPY, AUD/USD. Traders can also stay up with near-term positioning via our popular and free IG Client Sentiment Indicator.

---Written by Tyler Yell, CMT

Tyler Yell is a Chartered Market Technician. Tyler provides Technical analysis that is powered by fundamental factors on key markets as well as trading educational resources. Read more of Tyler’s Technical reports via his bio page.

Communicate with Tyler and have your shout below by posting in the comments area. Feel free to include your market views as well.

Discuss this market with Tyler in the live webinar, FX Closing Bell, Weekdays Monday-Thursday at 3 pm ET.

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