Analysts see scope for further rally in sterling versus New Zealand dollar

Wednesday's meeting of the Reserve Bank of New Zealand, alongside a preliminary reading on first quarter UK gross domestic product might be the triggers for the markets' moves in the currency cross.

As well, Obama's speech last week and recent more upbeat poll results appeared to point to a lower risk of Brexit, which had led traders to pare their 'shorts'.

GBP/NZD had been in a strong downward trend since the peak hit at 1.5360 last August. However, in the previous week the currency pair broke through what technical analysts call the primary downtrend to reach 2.10.

Little in the way of fresh action was expected from the RBNZ following a surprise interest rate cut at its last meeting, Fawad Razaqzada, technical analyst at FOREX.com and City Index explained in a research note sent to clients.

However, "it could nonetheless provide a bearish outlook on the New Zealand economy and hint at further interest rate cuts down the line. So, there is the possibility that the NZD could weaken. Although that being said, the surprise rate cut last time only had a temporary influence on the NZD before the currency surged higher," he explained.

There were several other technical indicators pointing in favour of a significant recovery in GBP/NZD, he said.

"As a result of last week’s rally, the GBP/NZD also formed a large bullish engulfing candle on its weekly chart (see the inset). This particular candlestick formation shows a shift from selling to buying pressure. What's more, all these developments have occurred around the long-term 61.8% Fibonacci retracement level (~2.0630), which is significant. Furthermore, the RSI momentum indicator has recovered from the "oversold" threshold of 30, formed a positive divergence with price and broke its own bear trend."

That long-term support and resistance level of 2.10 held the key to price-action in the near-term, Razaqzada believed.

If 2.10 was broken then the pair might target 2.15 as its next stop. On the other hand, if resistance held then the price might fall all the way back to the pont of origin, at around 2.0630-2.0720, before resuming its rally.

The loss of that level on a close-of-day basis would invalidate the current 'bullish' outlook, he said.