Good morning forex friends! I’m playing the downtrend in EUR/NZD after another ECB easing and ahead of the RBNZ decision this week.
Before you move on, for those who are not familiar with my framework, signals, setups, or acronyms, please visit my discretionary trading framework blog.
With the European Central Bank easing further last week, it makes sense to me to stay bearish on the euro, especially after the market pushed the shared currency higher after Draghi failed to meet the “anything it takes” expectations. Was the rally shake out all of the buyers of the market? I don’t know, but I think it was a big enough move where I feel okay going in with very small positions.
As far as the Kiwi, we’ve got a big event coming up this week in the form of the Reserve Bank of New Zealand announcing their latest decision on monetary policy. There are expectations that the RBNZ will cut (which is likely the reason why we’re seeing Kiwi weakness to start the week), but I think since the interest rates are still more in NZ whether they cut or not, the Kiwi will eventually gain on the euro after any initial reaction. Plus, there’s a strong argument that they’ll hold because of the strong New Zealand housing market.
This is why I’m looking to play the downtrending market in EUR/NZD after a pullback, and being conservative by going with very small positions at different levels. I’m picking the top and bottom levels of the recent consolidation area (between 1.6250 – 1.6500) as my short entries, with a wide stop above the consolidation area. My targets are the next minor support level, the first at the recent swing low for adjustment, but the second as my max profit target at previous support last seen back in June 2015. Here’s what I’m doing:
Short quarter position EUR/NZD at 1.6300, max stop at 1.6735, max target at 1.5350
Short quarter position EUR/NZD at 1.6500, max stop at 1.6735, max target at 1.5350
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 3.36:1 if both positions are triggered. 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 by following me on Twitter and Facebook!