Recent price action suggests that sellers are back in control of what has been a rangebound market in EUR/NZD. Is a retest of the bottom of the range in the cards?
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For the majority of 2016, EUR/NZD has traded in a range between 1.6150 to 1.7200, and in the last few months that range has seemed to tighten up a bit with the 1.6800 – 1.6900 area holding as resistance since March (a good sign for Kiwi bulls since that’s when the RBNZ cut rates). And throughout May sellers seem to have taken back the pair, and with that bit of price action confirmation, I’m ready to take a nibble short on EUR/NZD.
Fundamentally, New Zealand is still putting up shaky economic numbers (which supports another potential rate cut), but everything is all relative. The euro zone is on pretty shaky ground itself, and when combined with uncertainty from the constantly evolving Brexit situation and other external risk factors, the odds are probably higher that negative sentiment could creep back in on the euro vs. the Kiwi.
Overall, I like the Kiwi over the euro, especially as a way to take a nibble on long commodity exposure since they’ve been able to bounce back so far in 2016. But I’ll wait for a little bit more bounce higher to let the freshly released Fonterra global dairy data release to price in, currently putting pressure on the Kiwi at the moment.
My stop will be around my usual weekly ATR safety net and above recent swing highs, with my target around previous support areas that have held 1.5900 – 1.6150, forming the bottom of the 2016 range. Here’s what I’m doing:
Short half position EUR/NZD at 1.6620, max stop at 1.6975, profit target at 1.6000
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 1.75:1. If the market does get up to 1.6800, I will re-assess to see whether or not it makes sense to add on a second position to take it up to my usual 1.00% max risk, but increased potential gain.