EURNZD Ready for a Reversal

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EURNZD has formed a double bottom reversal pattern on the 4-hour chart and appears to have broken above the neckline as confirmation. A pullback to the former resistance is taking place, and holding as support could allow the uptrend to gain traction.

The chart pattern spans around 1.7500 to 1.7750, so the resulting climb could be at least 250 pips in height. However, the 100 SMA is below the 200 SMA to indicate that the path of least resistance is to the downside or that the selloff is likely to resume.

Price is also finding resistance at the 200 SMA dynamic inflection point but remains above the 100 SMA as an early indication of bullish pressure. The gap between the indicators also seems to be narrowing to reflect slowing selling momentum.

Stochastic is heading lower to show that sellers are in control, but the oscillator is closing in on the oversold region to reflect exhaustion. Turning back up could confirm that buyers are regaining control. RSI is also on the move down to signal the presence of bearish pressure, and this oscillator has a bit more room to head lower before reaching oversold territory.

There are no major reports from both the eurozone and New Zealand economy this week, which could leave market sentiment as the main driver of price action. Safe-haven flows could benefit the shared currency while risk-on moves could benefit the higher-yielding Kiwi.

The talks between the EU and the UK could be worth watching as the outcome of the vote on the Internal Market bill could bring volatility for EUR pairs. Also, the resurgence in COVID-19 cases in the region might limit gains for the euro as it could bring another round of trade and travel restrictions.

Later in the week, the NFP report could impact overall market sentiment and determine if lower-yielding or higher-yielding currencies are about to win out.

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