I may have been a bit early in my last attempt to short EUR/NZD, but price action is starting to indicate sellers may be back in control and that the downtrend may resume.
First, fundamentally I’m a big fan of the Kiwi for its interest rate advantage and the positive outlook on its economy by the RBNZ. Sure, the currency may have had an awesome run up to the recent rate hikes, but the big rate advantage will most likely support the currency higher in the long run. The risk to this trade fundamentally is that the eurozone is seeing signs of improvement, but it’s recovery is still uncertain with inflation as a concern and the possibility of negative rates from the ECB ever present.
Technically, the pair bounced higher after forming a double bottom around 1.5800, pulling back to the 50% Fibonacci retracement level. That’s where it looks like sellers have taken back control, pushing the market lower to currently test a confluence of the moving averages and a rising trendline. For me, if the pair breaks lower below the MA’s and trendline, I’m going in short. And because I wanna do this longer-term, I’ll have a wide volatility stop that will put me above the 61% Fib, and an initial target of adjustment at the March lows. Here’s what I am doing:
Short EUR/NZD half position at 1.6050, stop at 1.6350, adjustment target at 1.5770
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 slightly under 1:1. This is okay because this is meant to be a longer-term trade, and if it goes my way, I look to scale in and trail my stop to increase my potential reward.
What do you think about this setup? Do you think sellers are back in control or will buyers hop in at the rising trendline/moving averages? Please leave a comment below!