Remember that GBP/NZD falling wedge formation I showed y’all last week? Since price bounced off the support, I’m looking to enter at a forex pullback. You see, I’ve still got a long-term bearish bias on this one mostly because of Brexit concerns.
Using the Fib tool on the latest selloff shows that the 61.8% retracement level lines up with the top of the wedge and an area of interest somewhere around the 2.1500 major psychological mark. Price is stalling at the 38.2% Fib at the moment but I think it has room for a larger correction since stochastic hasn’t turned down from the overbought zone just yet.
Aside from that, I’m also seeing a bit of bearish divergence, with price making lower highs since mid-Feb and stochastic drawing higher highs. I’m looking to short at the top of the wedge but I’m also open to entering a small position at market once the oscillator starts heading south.
Data from the Chinese economy came in mostly weaker than expected earlier today so I think there may be some risk-off vibes in the forex market weighing on the Kiwi for now. I’m also worried that the New Zealand Global Dairy Trade auction tomorrow might show another sharp drop in prices and lead to a pop higher for GBP/NZD. These might be enough to take the pair up to my sell area before pound bears take over.
Of course I’ll also be on the lookout for the release of the U.K. PMI readings from the manufacturing, construction, and services sectors throughout the week. Both the manufacturing and services industries are slated to report weaker growth, and investors might find more reason to move their funds out of the U.K. if these business conditions are already shaky ahead of the Brexit referendum.
I’m planning on setting a wide stop past the swing high of 2.2000 and placing my profit target near the wedge support and previous lows of 2.0650. This should give me a 1.2-to-1 return-on-risk for this forex setup. Here are the deets:
Short GBP/NZD at 2.1475, stop loss at 2.2025, profit target at 2.0675.
I’ll risk 0.5% of my account on this trade so don’t forget to check out our risk disclosure if you’re gonna join me. Got any forex setups on the crosses that you think I should be looking at?