Since the RBNZ hinted that they might cut rates again while the Fed stands ready to hike sooner or later, I’m gonna hop in this NZD/USD selloff. Take a look!
NZD/USD Trade Idea
In case you missed my Comdoll Trading Kit for this week, lemme revisit this rising wedge breakdown that I’ve posted. I thought I already missed the move and that the Kiwi would keep plummeting from there but fortunately, a quick pullback to the broken wedge support took place.
Zooming in to the 1-hour time frame shows that the broken support is somewhere between the 50% and 61.8% Fib levels, as well as the .7300 major psychological mark. This area appears to have held as resistance already so I decided to short at market on a move lower.
I set my stop loss past the swing high and .7400 handle to give me room to trim my losses in case price jumps back inside the wedge and invalidates the Fibs. I plan on aiming for the longer-term support at the .7000 major psychological level but I’ll be ready to trail my stop to entry once price tests the swing low at .7220.
Apart from the RBNZ rate cut bias, I’m bearish on the Kiwi because market sentiment has reflected an increase in short Kiwi positioning. On the flip side, medium-tier reports from the U.S. have been mostly stronger than expected, keeping the Fed on track towards tightening monetary policy maybe in November or December. After all, policymakers did say that they’re simply waiting for signs of continued economic progress before eventually giving the go signal for a rate hike. This could keep a lid on risk appetite as investors anticipate higher borrowing costs, further dampening demand for the higher-yielding Kiwi.
Here’s what I have:
Short NZD/USD at .7275, stop loss at .7425, profit target at .7025. I risked 0.5% of my account on this setup and I’m going for a 1.67-to-1 R:R.
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See also: Q2 2016 Trading Performance Review