Forex Swing Trade Idea on EUR/NZD

My, my! It’s been a crazy week for the euro and the Kiwi, huh? Even though EUR/NZD popped higher in the past few days, I think the longer-term downtrend might stay intact so here’s my swing trade idea.

As Big Pippin mentioned in today’s edition of Daily Chart Art, EUR/NZD appears to be making a large correction on its 4-hour time frame, possibly pulling back to the falling trend line connecting the pair’s highs since the start of the year. I zoomed in a little bit to use the Fib tool on the latest swing high and low, trying to see if any of the levels line up with other inflection points.

EUR/NZD 4-hour Forex Chart

EUR/NZD 4-hour Forex Chart

Aha! The 50% Fibonacci retracement level coincides with a former support zone and the 1.5800 major psychological level. Stochastic is already indicating overbought conditions but hasn’t crossed down yet, suggesting that there may be enough buying pressure to lead to a test of the 50% Fib later on.

Germany is set to print its GfK consumer climate and IFO business climate reports today and small improvements are expected. In that case, EUR/NZD could still make a move higher and reach my target entry area at 1.5800.

From a fundamental standpoint, I think the selloff might resume as traders flock back to the higher-yielding Kiwi in pursuit of positive carry. Even though the RBNZ signaled a pause in its rate hike spree, they still offer the highest benchmark rate among the major central banks at 3.50%. Meanwhile, demand for the euro could still be dragged lower since the ECB recently cut several interest rates and is leaving the door open for further easing.

I’m looking to enter at the 1.5800-1.5900 area but I will wait for reversal candlesticks to form before jumping in. I plan on setting a wide stop above the 1.6000 major psychological level since I’d like to hold on to this as a swing trade, and I’ll be aiming for new lows below the 1.5400 area.

I’ll keep you posted when I set my entry orders so y’all better stay tuned!

Happy time

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  • Peter Griffin

    Good trading idea. I have already opened the trade. The reaction to the NZ rate hike was ridiculous. It should have been exactly the other way around in my opinion. Just because there won’t be any hikes in the near future, doesn’t mean one should short the kiwi now. Other banks haven’t done so for ages. Like you said, it’s still 3,5%, which is ridiculously sweet, especially on EUR/NZD with the almost 100% chance that the Euro will be taking further hits from Mario, should it gain too many pips. Economic weaknesses or not, the NZD will rise again in my honest opinion, it’s just a matter of time, time which will generate sweet positive carry.

    • Thanks for the positive feedback! What price did you enter? I’ll wait a bit for the initial negative reaction to the RBNZ rate hike to fade then for traders to return to the more attractive interest rate potential. Yep, I agree, just a matter of time! Good luck to us.

    • Yikes, looks like the dairy auction and employment data results are weighing on the Kiwi right now. I might enter at a larger retracement, possibly around 1.5900-1.6000. I’m still bullish on NZD but short-term factors don’t seem to be in its favor for now.

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