Going with a very simple forex technical setup on GBP/NZD, riding higher in a channel pattern that may look to retest the bottom very soon.
On the four hour chart of GBP/NZD above, we can see the market has been in a simple channel trend higher for weeks, and still in a big rally higher since bottoming around 1.9400 back in April (around 4800) pips. Fundamentally, the U.K. is still a frontrunner in terms of being a healthy major economy looking to tighten monetary policy, while New Zealand’s central bank has cut rates this year, a reflection of its weakening economy tied to China’s weakness. So, it makes sense that we’ve seen, and will likely continue to see bullish sentiment in GBP/NZD.
Back to the technicals, the price action is showing that the market is falling lower recently after testing the top of the channel marked above, potentially setting up the opportunity to buy into the strength at a potentially strong area of support: rising trendline and major psychological level (2.4000). Also, the stochastic indicator is showing that the market may be nearing potentially oversold conditions.
I like the setup here, but with a very active forex calendar this week, I will go in small if there is a retest of the bottom of the channel. I’m going with a pretty wide stop since this is a very active pair, and my target is the top of the channel for now. Here’s what I’m doing:
Long half position GBP/NZD at 2.4000, max stop at 2.3680, initial target at 2.4600
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 about 1.87:1. 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!