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.
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
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.