EURNZD at an important resistance

On the 12th of November, we wrote a piece about the EURNZD, where our outlook was bearish. Back then, the pair was trading at 1.671 and we set our target at 1.655. At the end of January, the price went as low as 1.652, slightly below our target. This marked a drop of nearly 200 pips. I think that was quite a good call.

EURNZD H1

I must say that EURNZD is a very pleasant pair to trade because it’s very technical. As such, we will discuss the situation on this instrument again today as we can see a very promising trading setup here. The pair is still in a downtrend, but we’ve recently had a nice bullish correction. It seems that this correction ended today. The reason we think this is that the price bounced from the downwards trend line (black) and the upper line of the flag (blue). The flag is a trend continuation pattern and in theory, a breakout of the lower line should bring us a sell signal. As you can see, the bounce from that resistance is very volatile, which may indicate a rejection of this area. Another negative factor is the potential false breakout above the orange horizontal resistance. In theory, that is a strong sell signal.

When we combine all of this together, we have a nice bearish setup. The sell signal will be rejected if the pair breaks through the black line, which is not so likely to happen as it stands. On the chart, I highlighted the correction equality pattern (yellow), which is close to the 38.2% Fibonacci. In theory, that would be a great resistance but it does not look like the pair is about to climb this far.

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