Is this a reversal pattern that I see on EUR/NZD?
Can the RBNZ’s hawkish announcement keep the rally going?
Before we go any further, ICYMI, Yesterday’s watchlist looked at the USD/CHF test of interest area ahead of the US PMI releases. Be sure to check if it’s still a good game!
And now for the main headlines that rocked the markets in the last trading sessions:
Headlines and recent economic data for the market:
US Flash Manufacturing PMI It fell from 50.2 to 48.5 to reflect contraction in May versus an expected drop to 50.0, PMI flash services It improved from 53.6 to 55.1 to indicate faster industry growth
Richmond manufacturing index It decreased from -10 to -15 indicating a deterioration in conditions in May instead of the expected improvement to -8
New home sales in the United States It rose from a low-rated 656k in March to a low-rated 683k in April versus an estimated 665k, reflecting an ongoing recovery in the housing market.
New Zealand retail address A decline of 1.4% in Q1 2023 versus an expected rise of 0.2%, the previous quarter’s reading was revised down from -0.6% to -1.0%
The Reserve Bank of New Zealand raised interest rates by 0.25%. As expected 5.25% to 5.50% but indicated a possible halt soon as policymakers had a split decision to tighten
UK main consumer price index Decreased from 10.1% to 8.7% y/y in April vs figure estimated at 8.2% to reflect stubborn inflationary pressures Core CPI rose from 6.2% to 6.8% rather than flat
UK input product prices It fell 0.3% m/m in April versus an expected rise of 0.1%, and output prices held steady instead of showing a gain of 0.2%.
German IFO Business Climate Index It fell from 93.6 to 91.7 in May vs. 93.0 expected, indicating deteriorating economic conditions.
Price action news
After consolidating in most of the previous trading sessions, the New Zealand dollar took a sharp drop across the board when the Reserve Bank of New Zealand announced its monetary policy decision in early Asian market hours.
Although the central bank still raised interest rates by 0.25% as expected, RBNZ officials have indicated that interest rates have peaked and they actually have a split vote to tighten this time around.
In their official statement, policymakers noted that global growth remains subdued while inflationary pressures abate. Domestically, they also note that companies are reporting slower demand conditions.
Later during the London session, the British Pound got some boost thanks to stronger than expected inflation data, as this is likely to force the Bank of England to tighten monetary policy again.
Bank of England Governor Bailey’s speeches at 9:30 am and 1:00 pm GMT
Speech by US Treasury Secretary Yellen at 2:05 pm GMT
FOMC Meeting Minutes at 6:00 AM GMT
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Trade EUR/NZD for 1 hour Planned by TV
Check out this sharp climb by EUR/NZD!
The pair has pushed off the lows around the 1.7200 region and has zoomed straight down to the lower double neckline near the 1.7500 mark.
A breakout beyond this resistance level could start an uptrend that is at least as high as the chart pattern or 300 pips.
In this case, the pair can go beyond R2 (1.7670) and to R3 (1.7810) if the upward pressure continues.
On the other hand, a return of bearish sentiment could lead to a pullback to R1 (1.7440) or even the pivot point (1.7310) near the previous day’s lows.
Just note that EUR/NZD is moving an average of 148.4 pips per dayso keep this number in mind when setting inputs and outputs.
