Following a sharp drop to a fresh 2-month low of 1.7170 on Friday last week, the EURNZD pair staged a rebound and was traded above 1.7230 during the European session on Monday. However, the pair retreats back to below 1.72 later in the session as the upside momentum was limited. The traders remained cautious ahead of a highly anticipated decision by the Reserve Bank of New Zealand on whether to raise its benchmark interest rate again this week.

The New Zealand Dollar is set to take the limelight midweek when the RBNZ is widely expected to hike by another 25bps on Wednesday. The market is pricing in a 68% chance the RBNZ increases rates by 25 basis points at this week's meeting. Meanwhile, euro price action this week has been dominated largely by US fundamentals and PMI data from Eurozone and Germany.

EURNZD short-term technical outlook

Technically the overall momentum remains mixed after the last week's sell-off. I expect the pair is likely to see more volatility going forward. In the short term, if the pair regained bullish momentum, then the next upside level to watch is 1.7260/70. If prices settle above 1.7260, the pair could re-test the hourly 200-SMA located near 1.7340. Successful clearance of this price level gives the bulls clear skies to aim for 1.7400. Although, the retracement rally on the EURNZD could provide new rally-selling opportunities. On the downside side, if the pair fails to regain upside momentum, then downside action should continue.

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