GBP/NZD: Long-Term Range Reversal? – Closed

Trade Closed: 2013-11-28 22:20 ET

Well, that was the shortest long-term trade setup ever! The no-mercy beatdown of comdolls plus Sterling strength means no resistance at the top of the range!

GBP/NZD daily forex chart review

GBP/NZD daily forex chart review

It’s pretty apparent that the market is not yet done selling comdolls, and it looks like the NZ Dollar selloff accelerated in the afternoon US session and Friday morning Tokyo session despite a positive read on NBNZ Business Confidence number (60.5 vs. 53.2 previous).

I decided to close this out early instead of letting it ride to my stop after seeing the broad weakness in NZD, and comdolls in general.  Closed manually at 2.0161. 

Total: -161 pips/ -0.40% loss

So, it was a quick, but very small loss.  In retrospect, it would have been wiser to wait for more confirmation that the level would hold (instead of the one retest and bounce) before taking action.  I still like the NZ Dollar longer-term as the data is still positive, but it looks like the urge to sell commodity dollars is still very strong and the Kiwi will continue to be grouped into that sentiment for now. Also, I need to cut out of losing trades like this much, much quicker.

Fortunately, I still have an open trade in GBP/JPY with a locked-in profit to counter the loss on this trade, so I’ll continue to focus on that for the rest of the week and look for new opportunities next week…Stay tuned!

Trade Idea: 2013-11-28 1:33 ET

While I’ve got my GBP/JPY long position marinating with profit locked-in, I’m looking to play a different type of trade on GBP/NZD. Will sellers take back control at the top of the range?

GBP/NZD daily forex chart

GBP/NZD daily forex chart

Looking at recent price action, Sterling has been on a tear against its counterparts while the commodity dollars have been getting beaten down with no mercy. This has brought one of my favorite pairs to watch, GBP/NZD, back up to a strong resistance level and major psychological area: 2.0000.

In June and August of this year, this area was able to draw in sellers, many of whom were probably looking to take advantage of the interest rate differential between the two currencies (currently: GBP @ 0.50%, NZD @ 2.50%). I think that after such a strong run from the British Pound, we may see exhaustion and the same scenario play out as the idea of the RBNZ possibly raising rates in 2014 and the BOE more likely to hold rates, continues to make the interest rate differential benefit very appealing.

The pair has already bounced off of 2.0000 to the downside, but I think I’ll get another chance to get in that price or better since we saw the market hang around this area for a few days before eventually reversing in previous tests of that level. Because this is a trade counter to the current trend of GBP strength, I’m going with half a position, and my stop will be not too wide (daily ATR) because if it does break to the upside, I want to get out quickly and reverse. Here’s what I am doing:

Short half position GBP/NZD at 2.0000, stop at 2.0200, max profit at 1.9000

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 0.50% on this trade, and with this forex trade structure, it’s a potential 5:1 return-on-risk with positive carry. Of course, I could be totally wrong with this trade, but if not and the market moves higher in my favor I may add another position to my trade to maximize my profit potential.

  • ForExchange

    Hi Cyclopip,

    do you have also Fundamental reason to go short here or only Technical?

    Thanks,
    ForExchange

    • cyclopip

      This was mainly a technical trade with a fundamental argument for the interest rate differential. Both UK and NZ have positive economic data to support both, but the Kiwi is being grouped into the broad comdoll selloff thanks to jawboning from the RBNZ. I’m out of this trade with a very small loss, but I’m still watching it closely to sell again when the time is right. Until then, gonna focus on my GBP/JPY long and new opportunities!

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