The EURNZD currency pair has been actively decreasing for three weeks already. Let us consider how traders sell the euro and buy the New Zealand dollar.
The reasons for the long-term weakness of the euro are the same: the ECB zero rate, maintenance (even the short version) of the QE program, weak economic growth compared with other regions of the world. Finally, growing inflation at the maximum rate for the whole time of the European Union.
The geopolitical factor has been recently added to this number of reasons. Market participants look at the intensification of hostilities in eastern Europe as a direct threat to the economy of the whole region. Such escalations often lead to strong movements on financial markets though they tend to be fast moving. At a last resort, the European Union financial authorities would likely take measures to stabilize the markets but this scenario is not considered as basic.
On the contrary, the New Zealand national currency got a strong incentive for growth. At the meeting of the Reserve Bank of New Zealand on 23 February, the key rate has been already increased for the 3rd time in a row and it has reached 1% by this moment. Moreover, money from the repayment of debt securities bought out in terms of QE will not be reinvested anymore and a direct sale of bonds to the market will start in July.
For the last 3 weeks, the EURNZD currency pair has been decreased from the 16-month maximum of 1.73567 by more than 4%. The RSI indicator has already been deeply in the overbought zone but it has not shown signs of reversal so far. Nevertheless, the last daily candlestick on the chart already demonstrates attempts of “bulls” to take the initiative. The main negative factors for the euro and positive factors for “kiwi” have probably been included in the price by market participants and it may be followed by the upward bounce of EURNZD.
Two trading strategies can be considered:
1) A buy of EURNZD for the current price. Take profit: 1.69. Stop loss: 1.665.
2) A buy of EURNZD with the test against the preceding minimum of 1.665. Take profit: 1.69. Stop loss: 1.655.
As financial markets show an increased level of volatility this year, traders on their own may use Trailing stop instead of the fixed Stop Loss as the price moves upwards.