As I mentioned in my Twitter update, I had been keeping a close eye on NZD/USD recently. Earlier this week, New Zealand Prime Minister Key practically urged the RBNZ to hike interest rates in their monetary policy statement this week, as he said that rates should return to normal levels soon. This gave the Kiwi an additional boost as it also drew support from the improvement in risk sentiment lately.
The pair recently broke above the .8400 major psychological resistance, which has been holding since last year. An ascending trend line can be drawn to connect the pair’s latest lows, indicating that a short-term uptrend is going on. Using the handy dandy Fib tool on the latest swing high and low shows that the 50% level lines up with the broken resistance. However, stochastic is still indicating downward momentum, which means that there’s a good chance NZD/USD could dip to my buy area before carrying on with its rally.
What I like about this trade is its positive carry, which could make it an excellent long-term setup if the RBNZ does decide to increase rates. I’m a bit concerned though that this scenario has already been priced in and that markets might be disappointed if the central bank doesn’t follow it up with hawkish remarks. In that case, I’ll have my stop set below the 61.8% Fib or the .8350 minor psychological level. Do you think that’s wide enough?
If it does go my way, I plan to aim for new highs and hold on to this long position until risk appetite turns sour or if the fundamental outlook for either New Zealand or the U.S. changes. I’ll be trailing my stop once price tests the previous highs around .8520 in order to protect my profits. I haven’t set my entry orders yet as I am waiting for a deeper pullback and confirmation signals in my buy area, but I’ll also try to hop in if the RBNZ statement does lead to a huge jump.
What do you think? Make sure you check out our risk disclosure if you’re planning on taking this one too!
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