EUR/NZD made a fresh 12-month low after the yesterday’s Reserve Bank of New Zealand’s monetary policy decision to raise rates by 25 basis points. The next major move down will depend on whether price will close below the 1.5625 level. The fundamentals completely support a weaker euro because the ECB is just starting its new stimulus package. Yesterday, the RBNZ also kept the door open for further tightening in the near future.
Many traders may feel they missed a big part of the move, but there is nothing wrong with selling even after an exaggerated selloff. If price resumes to the downside, price may find its next key support level from the 161.8% expansion level of both the X to A leg and C to D. It is around the 1.5450 area that a bulllish butterfly pattern may form. Long-term downside targets include the $1.50 handle.
The trade: Sell EUR/NZD at 1.5625 with a stop loss at 1.5675 and a take profit at 1.5475. The Risk/Reward Ratio is 1:3.
Edward J. Moya
WorldWideMarkets Online Trading