EUR/NZD meets key resistance ahead of ECB

• EUR/NZD bears have proven to be resilient at a key level of confluence.
• NZD  continued to enjoy an unimpeded run amidst an easing in US-China trade anxieties.

EUR/NZD has seen a pullback and commitment from the bulls on attempts to break and close below the 38.2% Fibonacci retracement level around 1.72 the figure. The cross currently stands at 1.7190 in early Asia but is tinkering of a subsequent sell-of again if bulls can’t gain control through this key confluence resistance area.  

EUR/USD rose from 1.1020 to 1.1068 then steadied at 1.1050, with some support from reports of possible fiscal stimulus in Germany which helped to boost the cross to the said resistance line.  Overnight, however, the Kiwi climbed and continued to enjoy an unimpeded run amidst an easing in US-China trade anxieties and receding safe-haven demand as traders get set for the European Central Bank this week, where a high probability of additional stimulus is likely to turn risk sentiment up a notch just as China’s recent stimulus measures have done so.

ECB to strengthen its dovish forward guidance

The 10-year bund yield rose 5.3bps, as expectations that the ECB will announce a stimulus package pared slightly. “We think the most effective course for the ECB is to cut the deposit rate and underscore that easing with renewed QE. Given that President Draghi is stepping down on 31 October, if QE is not introduced now, it could be delayed for months. We expect the ECB to tier the deposit rate for banks and strengthen its dovish forward guidance,” analysts at ANZ Bank argued.  

However, the NZ GDP is due next week which could clip the wings of the bird – The market pricing for RBNZ is for 3bp of easing on 25 September, with a terminal rate of 0.60%.

EUR/NZD levels

EUR/NZD bears have proven to be resilient at a key level of confluence in the 38.2% Fibonacci retracement resistance that meets a prior resistance and support level seen earlier this year on a couple of occasions, the most recent on the 16th of August. However, a break to the upside will target the 1.73 handle although the odds are heavily stacked against the bulls considering the engulfing bearish picture.