EURNZD Inverse Head and Shoulders (Jan 29, 2015)

Price is currently testing the neckline around the 1.5400 major psychological resistance and may make an upside break.

If that happens, the potential uptrend would be confirmed and the pair could climb by as much as 600 pips, which is the same height as the chart pattern. This could take EURNZD up to the 1.6000 major psychological resistance.

Stochastic is already indicating overbought conditions though, which suggests that euro bears could take control of price action soon. In this case, EURNZD could make another test of support at the 1.5100 handle, which appears to be an area of interest. Increased selling pressure could mean a move back to the previous lows at 1.4800.

Recall that the ECB just announced a large quantitative easing program last week, as they plan on purchasing 60 billion EUR worth of government bonds and private bonds each month. In addition, the political shift in Greece could mean more uncertainty in their debt situation, which could lend more downside for the shared currency.

As for New Zealand, the RBNZ’s decision to drop its hawkish bias is currently weighing on the commodity currency. Governor Wheeler reiterated that the currency level is unjustified and unsustainable, adding that he’s expecting to see further significant depreciation.

There are no other event risks for this trade today, as central bank policy biases could dictate longer-term price action. In terms of fundamentals, the euro zone is faring far worse compared to New Zealand, as the latter is still seeing strong domestic demand and improved hiring prospects. With that, the path of least resistance might still be to the downside.

By Kate Curtis from Trader's Way