Shorting EUR/NZD at the Falling Trendline – Closed

Trade Closed: 2013-07-31 18:25 ET

It looked like the falling trendline and minor psychological area would hold out, but alas, it was not meant to be as the bulls won out and push the pair above the 1.67 handle and took me out. Grrr!!

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

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Again it was a tough battle at 1.6650, but EUR/NZD bulls won out and controlled the market all the way up to 1.6730 before letting go of their hold. My stop orders were triggered at 1.6720:

Total: -129 pips/ -0.50% loss

I thought playing a cross-currency would keep me away from Wednesday’s major events in the US and the volatility it would bring, but their GDP reports and the FOMC’s monetary policy statement. I also missed a bit of jawboning from the RBNZ, basically saying that the Kiwi was a bit “overvalued” at currency levels, which was probably a big factor in cooling it off after the big push higher on potential rate hikes next year.

Overall, it was a sound trade setup in my opinion, but the market just couldn’t hold at resistance. The only thing I could have done differently was to close early and reduce my loss when the strong resistance at 1.6650 failed to hold and the market held above that level.

Thank goodness I kept my loss super small so that I can live to trade another day. We got major volatility in today’s session, and Thursday and Friday shouldn’t be any different. So be ready for what could be a wild ride to close out the week. Good luck and good trading!

Trade Idea: 2013-07-30 18:28 ET

Good evening! I’ve been looking for a way to play the shift in positive sentiment towards the New Zealand Dollar, and I think EUR/NZD might be the best setup. Will resistance hold at the trendline?

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Technically, this is a very simple play off a falling trend line. The euro has had a broad rally off recent positive economic data from Germany and France, which has brought the market back up to an area that may be attractive to New Zealand bulls. I am in the bull camp after the hawkish tone during the RBNZ monetary policy statement last week, and I also like the positive interest rate carry that being short EUR/NZD gives.

I’m also hopping into this trade because we do have New Zealand data coming up shortly: the ANZ Business Confidence report. This has been trending higher over the past three months, so the odds are good that we may get another good read, as well as a catalyst for another short-term NZD rally. I’m looking for a few quick pips ahead of the major economic events on the Forex calendar that are lined up in the latter half of the week.

So, I shorted here at market, with a stop above the next major handle, and my profit target at the major support area highlighted on the chart. This is what I am doing:

Short half position EUR/NZD at market (1.6591), stop at 1.6720, profit target at 1.6400

Remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Risk Disclosure.

This pair moves an average of 175 pips a day, so I think my exits are realistic. And with this trade structure, my potential reward-to-risk is 1.48:1. I look to hold on until the ECB monetary policy statement on Thursday, but of course, the story can change quickly in the forex markets. If it does, I’ll try to adapt as quickly as well. Stay tuned by following me on Twitter and Facebook for updates!

Thanks for checking out my blog…good luck and good trading!