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EUR/NZD Targets Short-Term Lows as Head-and-Shoulders Pattern Completes

EUR/NZD Targets Short-Term Lows as Head-and-Shoulders Pattern Completes

Market Overview

On Tuesday, the euro faces heightened uncertainty ahead of Thursday’s European Central Bank (ECB) decision on interest rates. The ECB has already started reducing borrowing costs and is expected to lower rates from 4.25% to 3.65% as part of its current cycle. Meanwhile, the New Zealand dollar remains under pressure from weak economic data out of China. The market focus is now on which currency will exhibit greater weakness. Current price action suggests that investors are favoring the New Zealand dollar over the euro as they anticipate rate cuts from the ECB. This preference caused EUR/NZD’s recent two-day rally to stall, as it encountered resistance at the 34-day moving average on the daily chart.

Technical Analysis

In the hourly chart, EUR/NZD has completed a short-term head-and-shoulders pattern, signaling a potential bearish outlook. Sellers broke below the neckline and right shoulder support at 1.79422, bringing the price to the immediate support at 1.79294, which aligns with the 100-period moving average. If the downward momentum continues, a break below this level could see the pair testing the next supports at 1.79101 and 1.78950, near the long-term upward trendline.

Oscillator Confirmations

RSI: The RSI is trending downward in the oversold territory, indicating stronger selling pressure.

MACD: The MACD histogram remains in the bearish zone, though the signal line has yet to cross below zero, suggesting that selling pressure could intensify further.

Moving Averages: Both the 34-period and 100-period moving averages are converging, with price trading below both, signaling a potential retreat of buyers from the market.

Alternative Scenario

On the other hand, for buyers to regain control and invalidate the bearish scenario, they must push the price above the trendline resistance near 1.79602 and break the right shoulder’s high at 1.79894. This breakout would indicate that the bearish setup has failed and could shift the market sentiment back in favor of a bullish reversal.

Key Levels Overview

  • Resistance Levels:
    • Resistance 3: 1.79894
    • Resistance 2: 1.79602
    • Resistance 1: 1.79294
    • Current Price: 1.79235
  • Support Levels:
    • Support 1: 1.79101
    • Support 2: 1.78950
    • Support 3: 1.78629

Key Events to Watch

The ECB’s rate decision on Thursday, followed by President Christine Lagarde’s press conference, will be the defining event of the week for the euro. Investors expect a rate cut, and any hints from Lagarde on future monetary policy direction will significantly impact EUR/NZD. For the New Zealand dollar, traders are watching the release of electronic retail sales data and the manufacturing PMI figures, due on Thursday and Friday, which will provide further insight into New Zealand’s economic health.

Conclusion

EUR/NZD remains poised for further declines after completing a head-and-shoulders pattern on the hourly chart. The pair is targeting key supports at 1.79101 and 1.78950. However, should buyers defend these levels and break through 1.79602, the bearish scenario would be negated. Investors should closely monitor the ECB’s rate decision and key economic data from New Zealand, as these events will determine the next directional move for the pair.

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