BoE decision taken this week, and we may see profit taking even after raising interest rates.
If that is the case, the pound could be poised for a round of weakness against the New Zealand dollar, especially if New Zealand posts a recovery in inflation expectations.
Do you think this will be enough to trigger a downtrend for GBP/NZD?
Before checking setup, make sure you know all the The most important market drivers last week So is this week potential market catalysts!
Forex GBP/NZD 4 hours Planned by TV
After seeing another round of stronger-than-expected CPI readings, the BoE may have no choice but to raise interest rates by 0.25% again.
But if policymakers signal that they are looking to halt the tightening cycle soon, we may just see the pound give back most of its recent gains.
The GBP/NZD has already formed a head and shoulders pattern on its 4-hour time frame to indicate that a reversal is possible.
Of course, the pair did not break below the neckline support at the key mark of 2.0000 to confirm selling. If this happens, the price could drop almost as high as the chart pattern or 400 pips.
Technical indicators are not yet convinced, as the 100 SMA remains above the 200 SMA, reflecting the bullish momentum. Also, the stochastic is rising from the oversold area to indicate that the buyers are regaining the upper hand.
With that, I would be looking for a break below the dynamic support of the 200 SMA, which happens to line up with the neckline, as that would be an early sign of a shift in momentum.
If you were hoping for something to malfunction, just be sure to consider that The GBP/NZD is moving an average of 156 pips per day When it comes to setting ins and outs!