NZD/USD Forex Retracement Setup

This week, I’m going back to the basics with this simple forex retracement play on NZD/USD. What do you think of this short-term trade setup?

NZD/USD 1-hour Forex Chart

NZD/USD 1-hour Forex Chart

As you can see from the 1-hour forex chart above, the pair recently broke below a support area around the .7800 major psychological mark. Since then, price has dipped close to the .7700 mark before showing signs of pulling back. Using the Fib tool on the latest swing high and low reveals that the 38.2% Fibonacci retracement level lines up with the broken support zone.

Stochastic is moving higher, indicating that Kiwi bulls could take the pair back up to the .7800 area before bears take over. In addition, economic releases from New Zealand such as the Global Dairy Trade index and the quarterly jobs report might spark mid-week volatility for the pair.

Towards the end of the week, traders’ attention could shift back to the U.S. dollar, with the non-farm payrolls report up for release on Friday. I’m gonna keep close tabs on the labor components of the ISM PMI reports and on Wednesday’s ADP non-farm employment change release to gauge whether an upside NFP surprise is likely or not.

I’m looking at a potential entry area around the .7800 handle with a stop above the highest Fib level. I’ll be aiming for new lows since dollar bulls seem to be on a roll, but I plan to trail my stop once price hits the previous lows around .7700.

What do you think? As always, I look forward to receiving and responding to your feedback on my ideas!

Cheers,

Happy time

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  • Kent Onomatopoeia Cook

    This one seems a little risky, given that the trend on the weekly chart has been moving down strongly since July. Then again, the Sep 28th & Nov 3rd lows could be forming a double bottom, and with the weekly stochs reading in the single digits, this COULD getting ready for a bigger move to the topside.

    • Oh I see, thanks for pointing this out!

  • ForExchange

    Hi Happy Pip,
    I am also not sure. The USD is really strong lately with very few and little pullbacks. This cannot go for eternity. Your fundamental bias is completely correct IMO as USD beats up everyone. I cannot tell you why I do not trade USD at this moment for longs. Might be an instinct which is never good I guess.

    Actually you are the comdoll expert so I use the chance to ask your view on silver and gold. They are on very low levels, tempting to jump in long. So what do you think? Is it a bottom or do they fall even more?

    As these commodities have a high correlation with USD, if you answer the question right you will also know what to do 🙂

    I really refuse to say if I am bearish or bullish on the pair at the moment, it is a tough call for me at this moment.

    Either way, good luck.

    FE

    • Ahh I see, looks like the dollar could stay afloat but it doesn’t have much room to head higher so I’m just looking at a short-term bounce off the .7800 resistance. But with the NZ employment coming in strong and GDT data coming in weak, I’m having second thoughts. I still think the NFP might push USD higher though.

      As for commodities, it looks like gold is being its usual “hedge against the dollar” self so it could keep dropping (along with other precious metals) while the dollar keeps gaining. Doesn’t help that oil prices are in another leg lower though, unless the OPEC intervenes and says they’ll reduce oil production to shore up prices.

      Once these commodities start to turn though, I’ll be looking at a risk-on anti-dollar play for sure. For now, you’re right, it’s a tough call.

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