The charts are looking bullish for the Pound versus the New Zealand Dollar, but Brexit talks will have to go well for Sterling to outperform again in the week ahead.

The Pound-to-New Zealand Dollar exchange rate is rising in a strong short-term uptrend, as can be seen on the daily chart below:

The trend is expected to continue given there are no signs of it reversing.

Our technical studies of the graph also confirm the formation of a bullish flag pattern has formed (drawn in the above) which would typically advocate for further strength.

Flag patterns are really just short-term pull-backs in the midst of strong uptrends that ultimately yield to an extension of the dominant trend.

The flag part is the pull-back - or sideways consolidation - which looks square-like and therefore resembles a material part of the flag.

The other part of the pattern is the flag-pole which is the move preceding the consolidation.

The flag pole is extrapolated higher from the bottom of the flag square to get the target for the end of the move as illustrated in this image below courtesy of www. dailypriceaction.com.

Conducting the same calculation on the Pound-to-New Zealand pair gives an upside target at double parity (2.0), however, whilst valid we opt for a nearer target at 1.9750, which is the 61.8% extrapolation of the pole.

This conforms to the Golden Ratio (0.618) of mathematics, which has been proven to govern forms in nature and aesthetics is thought to operate in financial markets as a method for measuring the length of waves of price action in relation to each other.

A note of caution about getting too bullish, however: the pair is in a long-term downtrend, so although we remain bullish in the short, we are mindful that strong moves down are also possible at intervals given the longer-term trend.

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Data and Events for the New Zealand Dollar

There are several important data releases in the week ahead.

The first is the Reserve Bank of New Zealand (RBNZ) Financial Stability report, out at 20.00 GMT, on Tuesday, November 28.

This event gives us a detailed insight into how policy-makers at the RBNZ are thinking; in the past the New Zealand Dollar has reacted to major policy announcements, particularly on housing.

In May, the RBNZ singled out three specific main risks: housing market vulnerabilities, bank funding pressures, and dairy sector indebtedness.

The RBNZ had introduced what are called 'macro-prudential' tools, which are essentially restrictions on lending to cool the housing market without having to raise interest rates, but after the new government brought in legislation stopping foreigners from purchasing new homes, the market has cooled anyway, and some don't think the macro policies are required any longer.

Investment Bank TD Securities do not expect any easing in macro-prudential rules, however, as "macro tools are about bank balance sheet strength, not house prices," apparently.

Regardless of the outcome, it is difficult to see this impacting severely on the exchange rate.

The other important release is Business Conditions in out on Thursday, November 30 at midnight.

Again, this is not normally in focus, but it is now because of rising concern about "the outsized slump in business confidence over September and October," say TD Securities.

The link is with politics and the new government and "whether this could translate into a curb in investment and employment in the wake of unclear Labour/NZ First/Greens coalition policies," adds the Bank.

Data and Events to Watch for the Pound

Whether the Pound can ultimately break higher against the Euro will depend on progress over Brexit negotiations; it appears this issue will increasingly dominate sentiment on Sterling into year-end with a key EU summit on the matter in mid-December being a highlight.

It is at this summit that EU leaders will decide whether or not to greenlight or redlight the progression of negotiations onto the all-important issue of trade and the future relationship.

Businesses and Sterling will need this process to begin as soon as possible.

Much like the many-headed Hydra, a mythical creature that Hercules fought, which regrew two new heads for every one he cut off, so the Brexit negotiations keep growing new problems for Prime Minister Theresa May just as she has seemingly dealt with one.

Just after appearing to agree on a divorce bill that will help propel Brexit negotiations onto the issue of trade, a new problem has presented itself in the form of the border between Northern Ireland and the Republic of Ireland.

Irish Prime Minister Leo Varadka has threatened to veto any EU agreement to progress Brexit negotiations if he feels progress on the Irish border is inadequate; this is quite an interesting stance considering such a veto could push the EU and UK to a hard-Brexit and no European country has more to lose on a hard-Brexit than Ireland considering the UK is easily their largest trading partner.

A senior Irish diplomat in the EU has said it would really be better all round if the UK remained in the trade and customs union - or at least the customs union as then there would be no border issue.

He warned the UK people not to put too much faith in future free trade agreements as even the best of these, would "fall far short of being in the single market."

One solution would be to essentially keep Northern Ireland in the EU (exempting it from Brexit) so that the border could be left open, however, this idea has been met with firm resistance from the DUP, Theresa May's partners in government, and her only key to a parliamentary majority.

With no clear solution, the Irish border issue is now likely to further delay the onset of the next stage of Brexit talks, and Theresa May has only got until December 4 to come up with a solution.

Clearly, how the Ireland issue evolves in the coming week, will probable be a factor impacting on Sterling with any substantial break-down suggesting the Brexit process will be slowed down.

"The bigger hurdle to clear in order to reach “sufficient progress” is agreement on the Irish Border. The Irish Government’s position is that an “electronic border” is not viable. As a result, it won’t settle for anything less than a UK commitment to regulatory equivalence between Northern Ireland and the Republic in line with EU standards," says Andrew Wishart, UK Economist with Capital Economics.

Wishart notes the UK’s current intention is to leave the Single Market and the Customs Union and regulatory equivalence across the Irish border would require a customs border between Northern Ireland and the rest of the UK, which David Davis has ruled out.

But Mr. Barnier pointed out in a speech on Monday that contrary to arguments this would come at the cost of the integrity of the UK single market, many rules in Northern Ireland already differ from that in the rest of the UK.

From a hard-data perspective, the main release in the coming week will be Manufacturing PMI on Friday, December 1, at 9.00 GMT, which is forecast to show an uptick to 56.5 from 56.3 previously.

Investment bank TD Securities expect the result to be even higher as Eurozone growth spills-over into the UK:

"While strength in its euro-area counterparts is being driven by broad-based growth there, spillovers to UK businesses should nevertheless give the measure a lift, and November's CBI indicators seem to suggest continued healthy growth by firms," they said in a week ahead round robin.

Get up to 5% more foreign exchange by using a specialist provider by getting closer to the real market rate and avoid the gaping spreads charged by your bank for international payments. Learn more here.