With fresh geopolitical news & risks, I’m not looking into entering into new forex positions right away. But there’s an interesting setup forming on NZD/CHF.
Before you move on, for those who are not familiar with my framework, signals, setups, or acronyms, please visit my discretionary trading framework blog.
For those who hasn’t seen the news, market sentiment is dominated today by two geopolitical events: downed passenger plane in Ukraine and Israeli troops moving into Gaza. Both events have traders pulling away from buying risk and moving into safe havens plays as seen in the equity markets, bonds, and the forex markets.
In the grand scheme of things, events in Ukraine and Gaza do not have a direct affect on the economies that we base our currency trades on, but what is typical is that risk aversion behavior is the name of the game for a bit until the focus shifts away from geopolitical issues and tragedies back to economics and finance. This leads me to holding back from establishing new positions for a bit and looking for setups for when geopolitical fears subside. It’s with that train of thought that I’m checking out NZD/CHF.
I’ve got the daily forex chart above, and we can see the currency pair has been in a general uptrend since the beginning of 2014. Not only are we seeing geopolitical issues sparking a pullback in favor of the Swissy, but New Zealand recently posted less than favorable inflation and dairy prices data to knock it lower this week. With everything that’s going on and fresh weak economic data, it’s logical to assume we’ll see further pullback, especially as we head into the weekend.
If we see a far enough dip, the market could be heading into a confluence of technical setups that could draw in buyers of the uptrend and big positive interest rate differential like myself. That area includes:
- the Fibonacci retracement area
- potential dynamic support at the moving averages
- previously broken strong resistance areas.
- major psychological level (.7700)
I’ll look to take a nibble trade in that area if retested with a wide stop using the weekly average true range, and my target will be the strong resistance level last seen in May 2013. Here’s what I am doing:
Long half position at .7700, stop at .7570, max profit target at .8000
I’m only risking 0.50% of my account on this one because geopolitical stories are very fluid, and with this trade structure, I have a potential reward-to-risk ratio of about 2.3:1. Of course, anything can happen in the forex markets (and with geopolitical issues), so if the story changes I’ll be sure to re-assess and adjust quickly. Stay tuned by following me on Twitter and Facebook!
For those who don’t like the crosses and like to stick to the majors, check out a similar setup from my homegirl Happy Pip: Forex Trade Idea – NZD/USD Area of Interest