EUR/NZD Breaking Major Support at 1.6000?

I thought I’d step away from the three Forex pairs I regularly keep track of in my Weekly Watch for a very interesting setup on EUR/NZD.

EUR/NZD Daily Forex Chart

EUR/NZD Daily Forex Chart

This is a longer term setup that I wanted to take after reading a couple of posts from my homie Forex Gump:

The expectation of a rate hike ahead of March’s RBNZ meeting was probably the general driver for the downtrend in EUR/NZD since topping out around 1.7200 last summer, and recent speculation that the European Central Bank (ECB) may have to battle a possible deflation scenario has been a contributor to keeping pressure on the euro.

With the outlook for the economy and more rate hikes looking bright for New Zealand at the moment, my confidence in a bullish bias on the Kiwi is as high as the Gators winning it all out of the Final Four.  And while I don’t think a negative rate scenario will necessary happen this week from the ECB, monetary policy tightening is certainly a very low probability, making the possibility of euro gains much lower than Kiwi gains for now.

And with the ECB meeting coming up this week, I’m going with a break-and-retest setup on EUR/NZD as my initial entry play.  The results and reactions off of ECB  monetary policy meetings tends to be a crapshoot, so I’m going conservative by waiting for a retest of the broken support area around 1.6050.  I also think this move my be slightly overdone and ready for a pullback.  If I don’t see a pullback and the euro story remains the same after the ECB meeting, then I’ll go with an alternative entry plan.

My stop will be a little over half of the weekly ATR, and my target is a big one as I go for the next major area of support last seen April 2013.  Here’s what I’m doing:

Short half position EUR/NZD at 1.6050, stop at 1.6300, max profit target at 1.5200

Remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Create your own ideas and don’t follow what I do. Risk Disclosure.

I’m only risking 0.50% of my account on this one, and with this trade structure, I have a potential reward-to-risk ratio of over 3:1. I actually look to add to this position and trail my stop if it does go my way to safely increase my potential reward-to-risk to over 9:1. The play is to trail/add the same distance as my stop, but I’ll do this manually as I’ll continually watch, reassess, and adjust my plan as necessary.

What do you think? Is EUR/NZD on its way to 1.5200 in 2014? Who will win the NCAA Final Four? Leave a comment below!

 

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  • whenim64

    I see that your stop loss is at 1.63. In my experience, that is not nearly enough breathing room for a long-term position. If this week closes above 1.6000, I can see a move to 1.6350 in the near future.

    • cyclopip

      Hey whenim64…thanks for sharing your thoughts! I usually use the weekly ATR as my stop size for a lot of my trades; any kind of movement outside of that to me means that there’s something going on that my invalidate my bias. For EUR/NZD, it’s almost 400 pips and at the time my trade idea, my stop level was just outside of reach. It looks like the trade is working out so far, but we’ll see how it goes next week.

  • ForExchange

    So far so good Cyclopip! Keep up with the news if you change something!

    • cyclopip

      Yup, everything is looking good right now. Stay tuned…I am watching closeIy may create an adjustment to lock in profits 🙂

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