GBPNZD Sees Lift-Off
Another week draws to a close and It’s been a pretty interesting week across the markets. We’ve seen big moves in equities, some key shifts in FX and whether you are a fan or not, cryptos have had another week of big volatility. Focusing on FX though, the main move traders seem to be discussing into the weekend is the pop higher in GBPNZD. You were either in or you were out, so this article will either be a pat on the back or a kick in the teeth, but that’s trading for you! So, let’s take a look at what happened and why this was a great trade.
What Caused the Trade?
First thing’s first. Once again, when trading the crosses, currency strength is a great tool to use. A quick glance at a currency meter over the week would have shown you that GBP was leading the pack and NZD was trailing behind. Now, why is this? You ask.
GBP Sentiment Improves On Lockdown Easing
Simply put, GBP has undergone a positive shift in sentiment over recent weeks as a result of the ongoing success with the UK’s vaccination programme and more importantly, its reopening schedule. Following the return of al fresco hospitality on April 12th, new cases have stayed subdued and deaths have stayed down. The UK is now set to see the return of indoor hospitality as of Monday. Ahead of this broader reopening, which is expected to help pour accelerant on the UK recovery, markets are turning sharply in favour of GBP.
Weaker Risk Appetite Hits NZD
Sadly, for NZD, however, sentiment has soured somewhat. In terms of COVID, things are looking good for the antipodean country which has been celebrated over its handling of the pandemic. However, due to NZDs links with risk appetite (as a result of the country’s reliance on commodities exports), NZD has come under pressure this week as equities markets tanked on rising inflation expectations.
As you can see, it was simply a case picking the stronger currency against the weaker currency here. Whether this theme continues to play out over coming weeks will depend a great deal on how the UK reopening goes and also the path which equities follow. Let’s take a look at the technical picture.
The correction from 1.9829 highs saw price trading all the way back down to the bottom of the bull channel where price has been caught in a tight range between the 1.9178 support and 1.9467 resistance. You can see that as the range persisted, the RSI indicator started showing bullish divergence, warning of a potential reversal higher. We then saw the MACD idnciator turn bullish as price moved up off the lows, preceding the breakout above 1.9467. While above here, 1.9829 is the next target for bulls.
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