EURNZD – The pair has been growing since the first days of February last year. From July 2017, the course moves in a growth channel, quite closely respecting its lower and upper limits. In mid-December, the pair left the channel by breaking its support line, which was tested than from the bottom on 22.12 and rejected creating the right shoulder (1.7066) of H&S formation and started heading south. Since then, the price has moved in a triangle-shaped consolidation, from which broke down last Friday after NFP (US payrolls) publication.
Currently, the price is at the level of 1.6780 neck line of the downward Head and Shoulders formation. In the near future we can expect two scenarios:
– bullish if the price will effectively break through the level of the right arm (1.7066) of the H&S formation (the green zone), and in that case we can change the attitude towards growth and basically forget about declines.
– bearish according to bearish H&S – after an effective breakthrough of the neck level (closing of the day candle below 1.6780), further drops can be possibly preceded by a correction in the form of a re-test of the lower limit of a recently abandoned triangle (blue dotted line).
On the way to the south, the pair will have to overcome the support level of 1.6670, where an upward correction is very likely.
The long-term goal can be a very interesting level of 1.6240 – 1.6100 (grey color) where there is a strong exchange zone – which has already been a support 3 times and twice a resistance. However, for the price to reach this zone, the pair would have to cover a distance of 580 pips, which is less than the range of H&S, which is about 700 pips.
The described scenarios will develop over the next few weeks, so you have to remember about the upcoming macro events that they can influence the quotations of this pair, and especially about the parliamentary elections in Italy on March 4, 2018, where the Populist Party of Five Stars is leading, which may mean much more turmoil than we had in France with Marine Le Pen. The more votes in the polls will be obtained by the party wishing to leave the euro zone and preferably the entire EU (Italexit?), the more will markets react with fear. How it will affect the volatility of the Euro can only be guessed.