With all these breakouts on GBP pairs these days, I’ve decided to switch to a bullish pound bias with this long GBP/NZD trade idea. What do you think of this channel breakout pullback setup?
As you can see from the 1-hour chart below, price made a strong upside breakout from the descending channel, indicating that the downtrend might be over. The pair found resistance around the 2.1350 minor psychological level, though, then gapped down after the RBNZ decided to keep interest rates unchanged.
I’m eyeing a possible long entry at the broken channel resistance and the 61.8% Fibonacci retracement level. This coincides with an area of interest around 2.0700-2.0750 so I’ll wait for reversal candlesticks to form around those levels. Stochastic is already in the oversold region but hasn’t really turned higher yet, which suggests that sellers might have energy to push for a larger correction.
In terms of fundamentals, I’m thinking that the pound might be bottoming out now that Brexit fears are fading. Based on the price action for the past few days, it looks like anti-Brexit comments from top officials might convince Brits to vote for staying in the EU and avoid greater financial and economic risks.
As for the Kiwi, the currency appears to be ignoring dovish comments and jawboning attempts from the RBNZ so far. However, sellers might soon jump in if economic data starts coming in weak again. We’ve got another dairy auction scheduled next week, along with New Zealand’s quarterly jobs report.
I haven’t set any actual entry orders yet but here’s my plan:
Long GBP/NZD around 2.0750, stop loss below 2.0500, profit target near 2.1350. I’m gonna risk 0.5% of my account on this setup and I’m eyeing a possible 2.4-to-1 R:R.
Remember to never risk more than 1% of a trading account on any single trade and to adjust position sizes accordingly. Create your own ideas, don’t simply copy what I do, and make sure you’ve read our risk disclosure!