Good afternoon forex friends! For this week, I’m going with a simple technical setup on NZD/USD which looks like it may be ready to return to the downtrend.
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On the four hour chart above of NZD/USD, we can see the market has found its way back up after bottoming out around .7200 earlier this month, testing the major psychological handle of .7500. This is just under the broken major support at .7600, so we could be seeing a “support-turned-resistance” setup in the works, as well as potential resistance being drawn in by the Fibonacci retracement levels of the lasts swing move lower. Also, the stochastic indicator is possibly showing that the move higher may be running out of legs.
Fundamentally, New Zealand has had a nice string of positive economic releases as of late and it does boast the highest interest rate among the majors, but I think USD has the potential to draw in buyers at these cheaper prices on the thought of the Feb potentially raising rates this year. Also, we’ve got a potential risk-off catalyst lurking in the form of the Greek bailout loan negotiations, and if those talks fall through, USD is the likely beneficiary because of its perceived safe haven status, with higher-yielding assets like the Kiwi likely to take a hit in broad risk aversion behavior.
Since the market isn’t quite all the way back up to the broken support level, I’ve decided to scale in small positions up to that point. My stop is going to be around my usual weekly ATR width from the average price, and my target will be the previous swing low for a nice potential return-on-risk. Here’s what I am doing:
Short half position at market (.7485), stop at .7720, profit target at .7200
Short half position at .7600, stop at .7720, profit target at .7200
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 1.92:1 if both positions are triggered. 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!