NZD/USD: Break and Retest of .8200 – Closed Early

Trade Closed: 2013-11-28 00:01

Wherefore art thou Kiwi bears?! As I mentioned in my Twitter update, I considered closing my short NZD/USD position early because price was just stuck around the large area of interest between .8150 to .8200. I suppose this means that, even if fundamentals and technicals lined up for a short bias, there still aren’t enough traders willing to short the Kiwi at this point.

nzdusd

I also mentioned in my trade plan that I will be closing early if U.S. data comes in weak. After all, one of the reasons why I decided to short this pair was that U.S. reports seem to support the idea of a Fed taper in December. With that, I was expecting to see a dollar selloff if U.S. durable orders data disappoints… and it did!

Here’s how it turned out:

+10 pips / +0.02%

I know, I know… It’s a measly gain but it’s better than a loss! Besides, the percentage gain was a tad larger but I gave up some of it because of the negative carry. Overall, I’m pretty happy with my decision and I think I might be better off moving on to another trade for now. Do you agree?

Trade Idea: 2013-11-25 8:58

I may have missed the chance to jump in that massive AUD/USD selloff so I ain’t passing up the chance to catch another potential comdoll slide. After breaking below the key .8200 handle last week, NZD/USD pulled up for a quick retest of that area so I hopped in and crossed my fingers that it would head back south!

nzdusd

As Big Pippin pointed out in today’s Chart Art, NZD/USD could find resistance at the 38.2% Fib, which is close to the broken support at .8200. Stochastic already reached the overbought levels and might cross down soon, but I did leave enough leeway for a higher retracement to the 50% or 61.8% Fib levels.

I’m bearish on this pair because the RBNZ keeps emphasizing that the Kiwi is overvalued. They did say that they can’t afford to intervene and that monetary policy can only go so far in terms of pushing the currency down, which suggests that they’ll grab every chance they get to just keep jawboning.

As for the U.S. dollar, the return of the taper theme could keep it supported, especially since the Fed seems to be the only major central bank thinking of reducing stimulus at this point. Of course I’ll keep track of upcoming data and central bank events which might cast doubts on the Fed taper again.

Anyway, here are my trade deets:

Shorted NZD/USD at .8200, stop loss at .8300, ultimate profit target at .7725.

I’ll be risking 0.5% of my account on this trade but I’ll be looking to add to my position if opportunities come up. Do you think NZD/USD can go all the way down to test its yearly lows? As always, I enjoy getting feedback from you guys so keep those comments coming!

Happy time

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  • Abbey

    Nice setup, but I went shot @.8161 stop @.8300 limit1 @.8015 which is 61.8fib retracement of the overall rise since June 2013 and my limit2 is placed @.7880 which is 76.4 retracement. Correct me If I’m wrong. Thanks

    • Happy Pip

      Yikes I’m a little worried that it’s making a very strong retracement at the moment and that it’s back inside the range. I usually just base my targets on nearby inflection points. Thanks for sharing those levels you’re watching based on Fib extensions, helps add to my confidence on this setup haha.

      • Abbey

        Thanks for the correction, I meant fib extensions not retracements, also I noticed an evening star bearish reversal on 4 hr chart, that should eliminate your concerns on the strong retracement.

        • Happy Pip

          Aha! Thanks for sharing this. Definitely adds to my confidence in this bias, haha. How’s your trade going so far? Did you add to your position?

          • Abbey

            I’m still in, my stop is @ 8300.

  • Nice!! I got a very similar setup on $NZDCHF 🙂

    • Happy Pip

      Ahh, interesting! I don’t usually pay attention to CHF pairs (except for USD/CHF) because they’re usually just cruising sideways in tight ranges. Thanks for sharing your thoughts on NZD/CHF! Looks like it responds really well to major/minor psychological levels, huh?

      • It does. I have found that NZDCHF, AUDCHF and GBPCHF are pretty good pairs to trade. It may take a while before they take off, but when they do it’s well worth the wait 😉

        • Happy Pip

          Cool beans. Thanks for reminding me to check out those pairs. That’d really help when I’m having trouble trading dollar pairs, taper theme does get complicated sometimes. These franc pairs seem to have cleaner ranges…

  • Mandy

    Yes I agree with you. But looking at the past few weeks record NZD has bounce back very quickly.
    I had the same view and went short on NZD/USD and lost.

    Do you think its better to keep the order open(sell) for few days on NZD/USD to have a stable rate as per our expectations and then close it on a profit?

    cheers,

    • Happy Pip

      That’s a fair point. Positive carry is still very appealing to most traders, after all. I’m counting on the trade balance release this week to come in weak, which might be a chance for some RBNZ officials to highlight the damage that the strong Kiwi has caused on their exports. In retrospect, I think it might’ve been a better idea to wait for the actual release then react instead of anticipating.

  • Christian de Vano

    my short position from October 24th still open until now.
    i hope that today’s close is not higher than yesterday, because i spot divergence in stochastic (14,3,3)

    well, good luck for us.

    my first target is 0.812, my TP place at 0.788

    • Happy Pip

      Woah, that’s a really long-term position! I wish I had enough patience and discipline to hold on to trades like that. How do you manage your open trade though? Do you add at significant breaks or retracements? Do you also trail your stop? Sorry for having plenty of questions, just really interested to improve my strategy. And yes, good luck to us!

      • Christian de Vano

        yes i move my stop, once the price touch my target. i open a couple position at the same time, with different target.
        adding some position? yes i do, usually at the important resistance and support if there is any chart pattern or divergence, but with smaller amount than my first position. i am using weekly open and close to determine my SL and TP.
        no problem, i also learn a lot of things from you all this time.

        • Happy Pip

          Aww, thanks for the kind feedback! I’m trying to get in the habit of adding smaller positions on pullbacks or breaks then trailing my stop lower at the same time, but it has proved to be somewhat of a trading psychology challenge for me. Sometimes I just want to take my profits and run! I’ll look into those weekly open and close levels as you mentioned. Really appreciate those tips!

          • Christian de Vano

            you are welcome.
            i think everybody has their own target, so it is okay, if your feeling said it’s time to close your position.

            ah one thing, it’s better not to against the trend. did you see triple top in NZD/CAD formed very beautiful?

  • Mike S

    Although I am concerned about the risks to further New Zealand dollar strength that new policy instruments such as the counter cyclical capital buffer could pose, at this point I would not want to be short the kiwi. I feel that the fundamental out look in New Zealand is still pretty strong, and that economic activity driven by the Canterbury is spilling over into the broader economy. http://www.stats.govt.nz/browse_for_stats/income-and-work/employment_and_unemployment/building-story-canty-employment.aspx
    Also on a technical level I would be concerned about the 200 day moving average around the .81600 level that has been providing quite a bit of support. Although the pair traded below it on 11/22 it still closed barley above. Anyway just a few brief thoughts. Thanks for all the hard work you put into your blog, I really appreciate the insight.

    • Happy Pip

      Thank you for sharing your insights as well! I’m playing this trade a little more carefully because of those factors you mentioned, but I’m thinking the RBNZ jawboning and Fed taper themes might keep this pair on a downtrend at least for the short term. I’ll watch out for that 200-day MA for a potential bounce.

  • FxSniper

    g

  • Mike S

    A couple of articles from the NZ Herald hinting that house prices might be cooling off a little in the near future. http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11163240

    http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11163209

    Also does anyone have any thoughts on the upcoming US durable goods print?

    • Happy Pip

      Ooh that shakes things up a bit, I suppose. For now though, majority of traders seem to be reacting to news of a large hedge fund selling AUD, which is probably why NZD might drop like a rock sooner or later. I’m playing it safe ahead of the US durable goods release, possibly adjusting my stop to entry or closing early if the report comes in very weak. How about you?

      • Mike S

        That makes since what you mentioned about hedge fund selling. I thought it was a bit odd that the good trade balance print didn’t send the pair higher, considering the trade balance has seemed to be one of Wheeler’s favorite talking points. I myself am over all bullish the kiwi, although as I have mentioned before I am concerned about the new regulations restricting high LVRs. Of course I am always concerned with a break down in risk trends, but time will tell on how that plays out. One other thing I have in the back of my mind is the reforms going on in China, most notably the widening of the band on the yaun. In theory I would think a strengthening yaun would help offset some of the risks a strong kiwi posies to New Zealand exporters. But again time will tell on that thought as well. In the mean time I intend to play my bullish kiwi bias by shorting GBP/NZD around the 2.0500-.0700 levels with a stop just above the 2013 high of 2.0710 @2.1010. My first target will be 1.9500 and second target of 1.9100. I am choosing to short the GBP because, Carney’s comments regarding productivity slack in the labor market, Euro area drag on the UK economy, the fact that CPI seems to be moving back towards the 2% target range, business investment is still not what I think it should be, there are some other things I can think of but the short of it is I don’t believe the UK recovery to be as strong as I feel the market does. And of course the nice looking set up with a very attractive risk reward ratio.
        http://stocktwits.com/message/17751107

        • Happy Pip

          Thanks for sharing your opinion and I think you have plenty of valid points right there! I’m also long-term bullish on the Kiwi because I think their fundamentals will make a good strong turnaround later on, like you mentioned with trade/exports. For the short-term though, it seems the more recent market themes (central bank jawboning, Aussie selloff) are weighing this pair down so I decided to take advantage of that. Once we see signs of a recovery in data, I’ll be ready to trade with my long-term bias. It’s offering nice prices to buy at the moment, huh?

          • Mike S

            Looks like the .8100 handle has held up. I myself am not sure how I feel about the “speed limit.” Also building permits were down, showing further sings of a housing market that might be cooling off. There is some data coming out of China early in the week. At this point I might be willing to take out a 1/2 position around the 81200-81300.

          • Happy Pip

            Yep, seems there were plenty of buyers waiting in that .8100 level. It’s the bottom of that wide area of interest anyway. Plus we just got relatively okay data from China and strong NZ reports over the weekend. Could be a bigger bounce…

  • FxSniper

    Always bullish until I see a DAY close below 0.8100

    • Happy Pip

      Makes sense. It seems this support/area of interest is really wide so it does sound more reasonable to wait for a more convincing break. Plus, there’s barely any downward momentum right now so it seems bulls are inclined to keep this pair supported. Thanks for sharing this point!

  • FxSniper

    Current price is a good bet for bulls in my opinion (on NZDUSD)

  • FxSniper

    I have two on it at the moment and will see how the bullish story unfolds. If it folds, I will be hit at 0.8117

    • Happy Pip

      Yipes, looks like it spiked lower in the latest US session. Did your stop get hit? I’m about to turn bullish on this pair, just waiting for technical confirmation and a fundamental catalyst. That .8150-.8200 area seems to be holding up really well as a support zone. Plenty of orders must be located in this area.

  • FxSniper

    My stop at 0.8117 was unfortunately taken out by two pips before pair reversed again. current h4 inside bar formation at support is another handle for another long and once above 0.8167, I shall be long again

    • Happy Pip

      All right then. I plan on joining you on the bull side when price dips to the .8100 area, a bit conservative with my entry level on this one. How high do you think could it go from there?

      • FxSniper

        I joined at 0.8150 and will target .8450 in a lump. Im keeping eyes as high as .8670 level

        • Happy Pip

          You’ve got momentum and strong fundamentals going your way. Nice entry! Just waiting for a close above .8200 before I switch sides but it looks headed for more gains this week.

        • Happy Pip

          Hey FxSniper! How’s your trade so far? I hope you loaded up! I’m planning on buying around .8300 now that the RBNZ sounded hawkish. Lemme know what you think of my trade idea once I have it posted!

          • FxSniper

            You can be sure I’m on it. 0.8260 support is my latest long level. I booked my two earlier longs. I will see how this one developes now that they have finally sounded hawkish one more time and time frames across the board seem to suggest strong bullish continuation

          • Happy Pip

            Awesome. I’m with you on this one! But a little late on my entries. How high do you think will it go?

  • Alibabababy

    I think the technicals are still very good to the short side.I see no reason to cover yet…

    • Happy Pip

      Gosh, you’re right on this one! Are you still in a short trade?

  • Alibabababy

    H.S. top daily and retest of neck line…IMO as long as we are below the neck line the path of least resitance is down.

    • Happy Pip

      How low do you think could it go? .8000 maybe?

  • FxSniper

    Unless NZDUSD closes below 0.8100, I will stay long and I still have my two possies in tact. one at 0.8150 and the other at 0.8114. I plan to short gbpnzd if it retests 2.0137 today

    • Happy Pip

      That GBP/NZD resistance at 2.0000 looks pretty neat! I’m looking at that spinning top and waiting for the next daily candle to close below it for confirmation. Possibly a nice 1000-pip selloff to 1.9000?

      • FxSniper

        2.0140 retest was enough for me on friday and i was filled at 2.0124. I am targeting 1.9560 from where I hope to be buying

        • Happy Pip

          I see. I thought it was gonna break out to the upside then, but it looks like that ceiling is holding really well. UK manufacturing PMI had a little pop higher but it appears 2.0000 won’t give way anytime soon. Middle of that large range seems to be a reasonable target then, keep me posted!

          • FxSniper

            The week has hardly begun and one day has not closed. So I expect the initial back and forth but so long as my entry is intact, I will hold and I believe strongly based on what I have before me, that we will make 1.9500 area by weekend
            or before if not, I know what to do

          • Happy Pip

            Yep, a lot of back and forth indeed! Still a couple of days to go. Let’s see how it goes.

  • Alibabababy

    Hi Happy Pip. Measured move is around 0.8925. We have reached first support @ .8100 so it could bounce here for a bit…time will tell. I`m not in on this one…but I wish I was! If it pulls back to the neck line again I will give it a shot @0.8225 with first target @ 0.8100 and second target @ 0.8950.

    • Alibabababy

      I seem to have a couple typos in my previous comments…measured move should be 0.7925 and 2nd target around 0.7950….Sorry for the confusion…just noticed!

      • FxSniper

        Obviously you still think those are realistic targets for them bears in the nearest future, huh? You sure about that?

        • Alibabababy

          Those are my targets indeed…as for being sure…of course not! Just going with the odds as I see them

          • Happy Pip

            Nicely said! Good luck with this trade, Alibabababy! Just be ready to make adjustments when you need to and manage risk properly and you should be fine.

          • Alibabababy

            Short @0.8226…stop 0.8260…

          • Happy Pip

            Looks like it’s going your way now! Congrats! Are you going to add to your position?

          • Alibabababy

            Got stopped out this morning…-40 pips…should have took profit before all that news!

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  • FxSniper

    NZDUSD has now officially turned bullish again on my h4. Heck! Direct target: 0.8400. Will see if it makes it before Friday

  • Abbey

    The pair spent the past 10 days under .8300, my stop is @ .8300, until broken, I remain bearish, I hope not to get stopped out for 137pips loss since I entered at 8161, but the only reason keeping me in the trade is the daily RSI which has been below 50 since Nov 20.
    Price action and 10mva broke down the 200mva when I entered the trade, but had quickly rebounded stronger above the 200mva, but the 8300 stop loss line is still in tact, well, maybe not for long, my limits remains at 8015 and 7880, I could be very wrong, but I’m sticking with it.

    • FxSniper

      Hopefully you decided to cut the loss. Is it still bearish to you at this time?

  • Abbey

    @FxSniper,
    thanks pal but too late.
    17 pips before stop is late and usually I never change my trade once it’s set, but what I did since the pair broke 8200 to the top side, the second time, was to go long on AUD/USD to serve as hedge to the eventual loss, however when 8300 is broken, I will also close the trade on aussy long. As it is now, the aussy long will actually reduced my net loss to within 43 pips as opposed to 137 pips. Again, thanks and let’s keep watching, it will be a miracle If I’m not taken out by early Sunday evening.

    • FxSniper

      Nice. You seem to have managed it properly. Hopefully you get a little retracement before 0.8300 is broken down. It should offer you a leeway if it retraces from around open price.
      Good luck. AUDUSD too has strongly turned bullish after the jawboning. Let’s see where they reach before the bears step in again. I will be pursuing 0.9300 for now

  • Abbey

    Be careful pal, I may be wrong, but I don’t see the Aussie above 9200, and my Aussie will be stopped at either a hit of NZ 8300 or Aussie at 90600, however, NZ is still holding on to below 8300, we’ll see what happens after China data.

    • FxSniper

      Well, I have been holding both for a while now and my mind is not too taken by them. They were meant to stay long for a while. 93.000 resistance is more meaningful to me on Aussie and I will hold for that unless i see a clear evidence to the contrary. There, I shall have a chance to evaluate my long bias. I just shorted GU for good measure. It should provide some hedge for me. like you said, we shall see.
      Good luck

    • FxSniper

      NZDUSD 0.8300 is a dead horse. Waiting to be buried.

  • Abbey

    China data at 830pm should knock it out, If not then hmm!

  • FxSniper

    It could retrace down to 0.8260. I believe it should get enough bids from there for the very possible assault. I’m really targeting 0.8550 henceforth

  • Abbey

    The only way I would consider getting out is If it retraces to my entry at 8161, otherwise, I don’t change my trades, I simply scalp a hedge to minimize loses.

    • FxSniper

      I am going long cadjpy at 96.30. Just wish me luck! My target is 101.09 resistance with stop at 95.83. Adding it to long held audjpy. I was short gj and ej last week and had to scramble out of them after they failed to follow through on initial fall. I hope I get a chance to long them this week
      Just wish me luck on cadjpy. hehe

  • FxSniper

    Good. Enjoy it

  • FxSniper

    I am targeting 0.8550 for now. I believe it has a big potential for 0.8670 resistance!