EUR/NZD Ready for a Move

So far, in 2011 the EUR/NZD pair has not made much progress. It started the year at around 1.7250 and now, six month later is at 1.7500, which not much more than a daily fluctuation. Nevertheless, that does not mean that the price action has been boring – quite the opposite.

Early on, the EUR/NZD rallied strongly, climbing to as high as 1.9569 in March. Since then, however, the price fell just as dramatically, touching 1.7350 in May, before settling down into a sideways motion, which prevails to this day.

This particular market phase should not last much longer. If we look at Bollinger Bands, we can see that this indicator has contracted a lot. In fact, the Bands are at a most narrow point since February, which was followed by an explosive breakout move. It is reasonable to expect similar outcome from this current congestion.

The direction of the eventual breakout is unknown, but based on the preceding trend, chances are that bearish sentiment will prevail. With that in mind, we should watch the trendline connecting recent minor lows, which was tested four times in a short time span. A move under that support, about 1.7450, could be a start of a new significant bearish price swing in the EUR/NZD.

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Mike Kulej for Forexpros.