Broken Support Retest on EUR/NZD?

After breaking strong support, I’ve been waiting for EUR/NZD to pullback so that I can get in the downtrend.  Now may be the time ahead of big forex events.

EUR/NZD Daily Forex Chart

EUR/NZD Daily Forex Chart

The biggest forex event of the week is of course the European Central Bank monetary policy decision. This is may be the most highly anticipated event of 2015 so far as everyone waits to see if the ECB will unleash a big quantitative easing program and how much. This is likely to spur high volatility, especially if the ECB surprises the market by not taking action. Of course, we’ll have to wait until Thursday to see what happens.

On the other side of the pair, we’ve got a couple catalysts today from New Zealand that can be market movers in their own right: global dairy trade data and the quarterly consumer price inflation data.  Dairy is New Zealand’s largest export and inflation has been in focus across the globe lately, so these events shouldn’t be any less important to forex traders for the Kiwi.

Whatever the outcomes are from this week’s events, overall I think the Kiwi is still the more attractive currency between the two because of the high interest rate, and on the daily chart, there is a simple support-break retest setup forming on the charts.  I’m eyeing that 1.5500 area as a possible short entry, and while it seems far away, I’m looking to be cautious with my entry for now ahead of the ECB event.  If I do manage to get in the trade at that level, my stop will be a wide one of one weekly average true range and I’m leaving my profit target open since the pair is now heading into uncharted waters.  Here’s what I am doing:

Short full position EUR/NZD at 1.5500, stop at 1.5800, initial target of 1.5000

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 1.00% of my account on this one, and with this trade structure, I have a potential reward-to-risk ratio of about 1.6:1 at my initial target.  Most likely, if 1.5000 is hit then I’ll reassess and adjust my trade to go for a bigger profit potential, especially since holding onto the trade means collecting carry interest.

Of course, anything can happen in the forex markets, so if the story changes I’ll be sure to reassess and adjust quickly if necessary. Stay tuned!