Swing Range Forex Short on NZD/USD

Starting out the week with a nice and easy forex range play on NZD/USD, ahead of a U.S. heavy data week and potentially active New Zealand dollar.

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

NZD/USD 4 Hour Forex Chart

NZD/USD 4 Hour Forex Chart

Technically, it really doesn’t get any simpler than looking for a reversal at the top of the range, which also happens to be in a longer-term down trend.  NZD/USD has been on the down move since hitting a high around .8800 during the Summer, and with the FOMC looking to raise rates in 2015, it fundamentally makes sense to keep buying dollars against currencies who are on hold with their rate hikes (which is pretty much every other major currency).

Besides the slew of U.S. data that’s coming out this week to provide some volatility (preliminary GDP, consumer confidence, housing data, etc.), I’m also looking at New Zealand’s trade balance after the U.S. session close on Wednesday to provide a potential spark to price action.  This data point went negative back in August, and with things slowing down in China (so much that the Bank of China had to cut interest rates), I think odds are good of another negative data point.

So, I’m going with a small short position on a retest of the top of the range, a small position because I don’t plan to hold on to this trade for long because of the negative carry.  My stop will be half of the weekly average volatility range, and my max profit target will be the bottom of the range, but I won’t hesitate to close if I see some support around .7800 or .7900.  Here’s what I’m doing:

Short half position NZD/USD at .7970, stop at .8060, max profit target at .7700

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 0.50% of my account on this one, and with this trade structure, I have a potential reward-to-risk ratio of a big 3:1.

Including this order, I have three potential USD long trades in the works if the market moves to hit my entry points.  I may adjust my entry on my USD/CAD long idea since the positive Canadian inflation data pushed the pair lower, but if this week’s Canadian data comes out positive, I may just bail on trying to short the Loonie in the shorter-time frame (I still have a NZD/CAD long working for me).  And based on how Cable reacts this week to the inflation hearings, I may adjust the entry on my GBP/USD short idea as well.

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!