Following the heavy declines of the last two months, EUR/NZD has been trading within a tight block of corrective consolidation over recent weeks. The local formation can be viewed as a bear flag, suggesting a breakdown and continuation of the longer-term downtrend. The 16159 level represents significant support in the pair, and a break below here will be firmly bearish, allowing short sellers to target 1.5998 and 1.5884 after that.
With the retail community around 90% long, there is plenty of room for a breakdown to gather momentum. The divergence between monetary policy expectations for the European Central Bank (ECB) and (RBNZ) favors a recent trend, especially with the Eurozone grappling the start of a potential fifth wave of COVID, which is raising uncertainty heading into the winter.
Key Data to Watch
Eurozone CPI and NZD inflation expectations will be the two primary readings to focus on this week. However, the broader themes of monetary policy expectations, COVID developments, and movements within the US dollar and commodities space will also be critical.