EUR/NZD has enjoyed an impressive rally from year-to-date lows in April fueled by a cross dynamic of EUR strength. The rally highlights EUR’s inverse relationship with risk assets following the ECB’s QE announcement in January, and NZD weakness stemming from the severe decline in commodity prices this year and RBNZ easing.
At this juncture, EUR/NZD is currently stalled within a six-week range that has held following the acute spike we saw in price on Monday 24 August. Price is currently sitting at the bottom of the range and as such is presenting nice risk: reward for an attempt at joining the rotation back into the top of the range.
The fundamental landscape favours a continuation of these recent themes with both further commodity weakness and risk-correlated EUR strength likely to continue.
Trade Idea
EUR/NZD has tested the lower range support line and has pushed out into the second standard deviation of VWAP suggesting the range is now overstretched.
Trading Takeaway – Position long here with stops below horizontal range support targeting a move back into the top of the range.
