Like many of you out there, I’ve been watching GBP/NZD fly higher and kicking myself for missing the huge rally. Well, it’s pulling back once again, but will the buyers hop back into the trend?
Fundamentally, we’ve got a lot going on for the pair this week with the minutes from the latest Bank of England meeting being released on Wednesday and the Reserve Bank of New Zealand monetary policy meeting early in the Thursday Asia session. Both are likely market movers, but the RBNZ meeting may be the bigger catalyst for movement and direction for this pair.
The most recent sentiment is that the RBNZ will likely cut this Thursday, which is actually something forex traders have been pricing in for a while based on the weakness we’ve seen in the Kiwi over the past few months. GBP/NZD has went from 1.9400ish to a high of around 2.4000 since mid-April, which is roughly a 24% move–gangsta!
Technically, we’ve seen a bounce in the Kiwi in the last few sessions, likely on forex traders taking some money off of the table ahead of this week’s events. For me, that’s an opportunity to dip my toe in this trend, especially since the likelihood of a rate hike is probably near zero. And the sentiment is that the BOE is slowly getting closer to raising rates if data improves vs. the RBNZ cutting rates (or staying put) is highly likely, which I think will continue to draw in some buyers. Do I think there’s another +4000 pip move in the cards? Highly unlikely, but I think there’s another possibility for another move to restest 2.4000.
So, I’m going to scale into a small position at the Fibs, which also happens to line up with the 100 SMA and the previous broken-resistance area from the end of June. My stop will be a wide one using the weekly Average True Range (ATR), and my target will be the recent swing high. Here’s what I am doing:
Long a quarter position at 2.3400, max stop at 2.2700, profit target at 2.4000
Long a quarter position at 2.3200, max stop at 2.2700, profit target at 2.4000
I’m only risking 0.50% of my account if both positions are triggered, and with this trade structure, I have a potential reward-to-risk ratio of about 1.16:1. 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!