Since bottoming in February 2017, EUR/NZD has produced a bullish trend structure overall. Yet since falling 5.5% from the December high, it has appeared a little hesitant to re-test it. That said, we think pressure could be building for bullish momentum to return.
Firstly, EUR/NZD continues to respect the bullish trend line from the 1.4589 swing-low. Admittedly it was penetrated with a spike-low in June and there were some minor crossovers last month, but it supports the bullish structure overall.
Dominant momentum is clearly bullish and we now hover just beneath the 2018 high of 1.7096. Taking the dominant momentum into account, we think the next major break will be bullish.
Zooming into the daily chart, volatility subsided ahead of Thursday’s ECB meeting. This tends to be the case ahead of important events, but it also serves as a warning that volatility is to return in due course.
Wednesday provided an inside day (price compression), which means we are now seeking range expansion and a break above resistance.
If we don’t see range expansion above resistance, then it’s a no-trade for us. And while we favor a bullish break, a small bearish clue came in the form of a hanging-man reversal on Tuesday. That it hovers beneath the 1.7096 high and spiked lower suggests it may be trying to carve out a top. And if price is to roll over beneath 1.7096, we can look back and say “yes, that was a reversal warning.”
However, it can be easy to forget that ‘reversal’ candles don’t always turn out to be so. If price instead breaks to new highs, we could just as easily look back with the advantage of hindsight and see it as a bullish hammer.
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