Forex Watchlist: EUR/NZD Looks Ready to Extend Its Downtrend

Trend warriors have a chance to jump on EUR/NZD’s downtrend as the pair tests a channel resistance!

Will EUR extend its weakness against NZD this week?

Here’s the 1-hour chart that I’m looking at:

EUR/NZD 1-hour Forex Chart

Aversion to high-yielding commodities currencies and the euro’s safe-haven appeal helped support EUR/NZD at the 1.5600 levels back in April.

The pair’s uptrend extended to the second week of May when it hit resistance around the 1.6800 area.

EUR/NZD’s tides have since changed and now EUR is trading in a short-term downtrend against NZD. In fact, the pair is locked inside a descending channel!

Trend warriors have a chance to ride the downtrend as EUR/NZD pops up dojis and indecision candlesticks just below the 1.6600 mark.

As you can see, 1.6600 not only lines up with the descending channel resistance but also the 200 SMA ceiling on the 1-hour time frame.

And if that’s not bearish enough for you, Stochastic is also on the bears’ side with an overbought signal and a potential divergence as price makes higher highs while Stochastic steadies around the 96.70 levels.

Let’s see if the Reserve Bank of New Zealand’s (RBNZ) monetary policy decision can extend EUR/NZD’s downtrend.

The central bank could raise its interest rates by 50 basis points this week, which is currently more hawkish than European Central Bank (ECB) members who have only just started hinting at future rate hikes.

Risk appetite could also boost NZD and weigh on EUR. If traders continue to price in inflation measures from major central banks and hopes that summer demand in the US and easing lockdowns in China will soon boost global economic activity, then EUR/NZD may extend its downtrend.

Don’t discount an upside breakout though!

A buy-the-rumor, sell-the-news scenario during the RBNZ’s rate hike or a return to risk aversion could turn traders away from the “high risk” comdolls and to the “safe-haven” euro. EUR/NZD could bust above the channel and 200 SMA resistance zones to retest previous areas of interest like 1.6660 or 1.6770.

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