Forex Trade Idea: Hopping in EUR/NZD’s Downtrend

My, my! EUR/NZD seems to be on a non-stop decline, as price recently broke below record lows and looks ready to create new ones. I’ve zoomed in to the 1-hour chart to catch a quick pullback on this forex downtrend.

EUR/NZD 1-hour Forex Chart

EUR/NZD 1-hour Forex Chart

A descending trend line can be drawn to connect the pair’s recent highs and it seems that a retracement to the 1.4700 resistance area near the 38.2% Fib is taking place. I’m thinking of selling on a test of the trend line with a wide stop around the latest swing high. Stochastic is indicating overbought conditions, which suggests that euro bears are ready to push this pair to new lows.

From a fundamental standpoint, a downside bias makes sense since the euro zone is on a much weaker footing compared to New Zealand. The upcoming ECB rate statement could be a catalyst for this pair, although some forex analysts say that Draghi could take a more upbeat stance and focus on the green shoots in the economy.

At the end of the day though, New Zealand is outpacing the euro zone in terms of an economic recovery, as the former has seen consecutive gains in dairy prices and could be in for better export revenues later on. The recent PBOC rate cut might even be positive for the commodity-drive New Zealand economy, as this could eventually spur stronger demand from the world’s second largest economy.

Here’s my plan:

Short EUR/NZD around 1.4700, stop loss at 1.4900, initial PT at 1.4500.

I’ll be risking 1% of my account on this setup, but I plan to adjust my stop to breakeven as soon as the previous lows at 1.4600 are tested. Make sure you read our risk disclosure if you’re thinking of taking this forex trade, too!

Cheers,

Happy time

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