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EUR/NZD breaks out

The markets have been relatively quiet over the past couple of days, which has made our job a little trickier in trying to find new ideas.  This partly explains why I am looking at the EUR/NZD cross today, which is admittedly not a heavily-traded market. However, this doesn’t take away from the fact price action has been very beautiful for the bulls of late, and today’s breakout above the key 1.76 handle means the bullish trend could continue for a while yet.

Here are two major scenarios that could unfold going forward:

  1. With the EUR/NZD currently holding above all its major moving averages, making higher highs and higher lows, and given today’s break above the key 1.7580-1.7600 resistance area, the path of least resistance is clearly to the upside at the moment. As such, rates may aim to move towards the next round handles such as 1.7800 and 1.7900 next, with the psychologically-important 1.8000 handle being our ultimate bullish objective – for this level sits just above the 2018 high of 1.7930.  
  2. However, if the above-mentioned breakout area of 1.7580-1.7600 fails to hold as support upon a potential re-test, and rates close back below this region, then in that case the breakout bullish traders will be trapped and the sellers could step in to drive prices sharply lower as a result.
So, scenario 2 is an equally compelling idea to consider, although our base case is the bullish idea outlined under scenario 1 above.

Source: eSignal and City Index.

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