Long-term Short on EUR/NZD – Closed

Trade Closed: 2013-09-26 21:30 ET

Thanks to strong Kiwi Dollar selling this week, my long-term trend play turned into a short-term one–and not in a good way.

EUR/NZD 1hr Chart

This week, we saw general risk aversion behavior in the markets and when you couple that with the weaker-than-expected New Zealand trade balance numbers, it was not a good week to be long Kiwi Dollars.

EUR/NZD quickly found buyers at 1.6100 as sentiment changed, turning my 100 pip gain into a small loss.

-225 pips/ -0.50% loss

This is probably a short-term blip in that longer term trend, but with continued uncertainty right now, I’ll revert to shorter-term trades for now. Thanks goodness for keeping my losses small and living to trade another day 🙂

Trade Idea: 2013-09-18 4:43 ET

Here’s a pretty little chart on EUR/NZD that was juicy enough to take right away.

EUR/NZD Daily Chart

Since the beginning of June, the 1.6400 area has been a strong area of interest for optimistic euro bulls and kiwi bears. But with recent events from both the ECB and RBNZ shifting sentiment, this might be a legitimate break, with big profit targets if we start to get momentum going to the downside. So, what happened at the central banks?

From the European Central Bank, Draghi may have changed the game for the euro at the last meeting when he admitted that policymakers discussed lowering interest rates. This was the catalyst for the extended move lower after EUR/NZD tested and failed the 1.7000. And I believe the pair finally had the power to break lower last week when the RBNZ mentioned at their meeting that interest rate hikes will “likely be required” next year–whaaaat!!!???

So, with diverging monetary policy outlooks, fundamentally it makes sense that the pair has the gas to stay below 1.6400 and move lower.

The pair has already spent the past 4 to 5 day below the 1.6400 area, so I think it’s safe to say that the bears may be in control for now, which is why I’m shorting this pair at market.

Sold half position EUR/NZD at market (1.6205), stop loss at 1.6430, profit target at 1.5200. Risking 0.50%.

Remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Risk Disclosure.

My stop is about half of the weekly average volatility, and my target is the major support area around 1.5200, 2012 and 2013 lows. This setup provides a minimum potential reward-to-risk ratio of 4.46:1, but I look to trail my stop and scale into a bigger position if the trade goes my way to increase my R:R.

What do you guys think? Will the pair stay below 1.6400 and move lower?