Spotted another textbook Fibonacci setup on EUR/NZD that really seems to have trouble with upside resistance. Is it time to jump back in short?
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This is mainly a technical trade idea with the 61% Fibonacci retracement area marked above holding off buyers from pushing the market any higher above the 1.7100 handle. Buyers have failed at this area before and it was a minor support area back in September that was broken and now seems to be resistance.
Fundamentally, we all know that the European Central Bank is likely to keep easy monetary policies (quantitative easing & negative interest rates) around for a while to boost the European economy, and from New Zealand, we’ve recently got a round of mostly positive trending economic data. So, it’s likely we’ll continue to get fundamental/position forex traders supporting the Kiwi over the euro if their stories remain the same.
I also feel like the recent round of “risk-off” sentiment that’s taken over the markets in 2016–sparked by global growth worries and maybe the idea of Fed rate hikes–might be running out of steam. Of course, we won’t know if this is the end of the selloff until maybe six months from now, but barring any new economic or geopolitical surprises going forward, I think the current concerns are already priced in for the short-to-medium term.
So, I’ve decided to play the resistance that has held, on the idea a bounce in risk sentiment is around the corner. Plus, I like the interest rate divergence between the Kiwi and euro. I’l scale into a short position starting near current market prices, with a pretty tight stop of just above the Fibonacci area. My max target will be the strong support area that held at the end of 2015 and makes for a good potential return-on-risk. Here’s what I’m doing:
Short half position EUR/NZD at 1.6900, max stop at 1.7375, max profit target at 1.6000
Short half position EUR/NZD at 1.7100, max stop at 1.7375, max profit target at 1.6000
I’m only risking 1.00% of my account on this one, and with this trade structure, I have a potential reward-to-risk ratio of about 2.94:1 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!