EUR/NZD – Euro Facing Downside Risk

The eurozone economy grew rapidly in the third quarter posting a 12.7% growth in GDP over the last quarter but with coronavirus infections increasing and new restrictions being implemented, downside risk is likely to continue.

DAILY TIME FRAME

Looking at the daily chart above, we can see that this pair was trending to the upside creating higher highs and higher lows illustrated by the ascending trend line. On the 27th of October, price broke structure to the downside which can be seen more clearly by looking at the upper highlighted region drawn from the bottom of the previous higher low. If the current daily candle can close below 1.75730, shown by the lower highlighted region, I expect further downside but if price closes above this region, we could have a potential double bottom which would signal further upside before price moves lower.

4 HOUR TIME FRAME

Dropping down to the 4 hour time frame, we can see that by placing the fib from high to low, there was a reversal off of the 61.8% and looking at the horizontal ray at 1.6840, notice that previous support turned into resistance. Looking at the previous candle closure, we can see that price broke structure on the 4-hour as well closing below the daily level drawn as well as the double bodies directly to the left of current price. The current candle is indecisive, and should there be a pull back, it would offer the opportunity drop down to the lower time frames to look for potential short positions if there is bearish candlestick confirmation at one of the preferred fib levels. Downward targets are 1.74500 and 1.73700.

Since Germany and France, Europe’s two biggest economies, imposed new restrictions this week to contain the spread of the virus, the eurozone is now expected to shrink again this quarter. Due to the rising infection rate, consumers have begun to avoid eating out, traveling as well as in-person entertainment while businesses are becoming more cautious. It is understood that any contraction in the eurozone economy this quarter is unlikely to be as deep as the April drop because the manufacturing sector, the second biggest sector in the eurozone, has made a strong recovery.

Remember to use fundamental analysis in conjunction with technical analysis to provide strong directional bias when analyzing specific pairs. Subscribe to receive blog posts sent directly to your email.

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