Shorting GBP/NZD into Downtrend

It looks like sentiment may be shifting to the downside for the Sterling, which makes the technical short forex setup on GBP/NZD attractive.

Before you move on, for those who are not familiar with my framework, signals, setups, or acronyms, please visit my discretionary trading framework blog.

GBP/NZD 4 Hour Forex Chart

GBP/NZD 4 Hour Forex Chart

Thanks to the Bank of England meeting minutes today, the British pound went into sell mode with the two dissenters (Martin Weale and Ian McCafferty) no longer calling for a rate hike. I think this may be a sentiment game changer for the pound now that it’s a unanimous vote to keep interest rates low for some time, at least for the next few BOE meetings.

With that premise, I decided to look for Sterling short plays and I found a textbook setup on GBP/NZD. The pair is in a downtrend and it recently bounced higher from a swing low around 1.9250. It seems to have found resistance at the three technical arguments marked on the four hour forex chart above: Fibonacci retracement area, downward moving averages, and a downward trendline.

With the pair already showing confirmation of a reversal back to the downside, I’ve already jumped in short at market, looking to hold this for a while to collect the positive carry interest that the New Zealand dollar provides. My stop is a wide one of one weekly ATR, and my max target is a big one, a major support level last seen back in April 2013.  Here’s what I am doing:

Short full position at market (1.9661), max stop at 2.0160, max profit target at 1.8000

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 1.00% of my account on this one, and with this trade structure, I have a potential reward-to-risk ratio of about 3.3:1. With such a big target, I’ll definitely look to add to my position (and trail my stop) to increase my potential max reward while reducing my risk if the pair does go my way.

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!

 

  • ForExchange

    Hi Pipcrawler,

    do you think the sudden move against the trade has to do with CAD rate cutes? Since the news came out there is a huge movement to the opposite side in all comdoll pairs.

    Thanks,

    FE

    • Pipcrawler

      Hey ForExchange…that surprise BOC rate cut definitely affected all comdolls. Take a look across all of the pairs during its announcement and you can see the Aussie and Kiwi taking dives against the rest of the major currencies. Kinda wish I had waited because the trade looks even better now, but I didn’t expect the BOC to have this big affect on the comdolls. But you know, that’s just the way it goes sometimes, and for now I’m still holding onto this trade.

  • Pipcrawler

    Thanks for the positive feedback and hopefully you got in after the BOC rate cut, which affected all of the comdolls. Good luck bud!

  • Pipcrawler

    It was that surprise BOC rate decision that caught a lot of long comdoll players like myself off guard. I’m still in this position, hanging on a string, and I’ll keep hanging into the weekend. How is your position doing?

  • Pipcrawler

    Your AUD/USD short must be kicking butt now… congrats! We may get another surprise rate cut RBA, but we’ll just have to wait and see, won’t we? For now, I’m looking to throw in nibbler positions around the comdolls for now and see what happens next week… good luck bud!

    • 05jaylee

      Thanks, I had some good luck this week, pair moved faster than I thought. I may move my stop to .8300 but need to look into it over the weekend. Im not thrilled that US regulaters changed margin requirements on AUD this week, changing the rules during the game so to speak, but thats another story. Ive got it covered. Hope everyone has a successful upcoming trading week.