NZD/USD: Drop It Like It’s Hot – Profit Target Hit!

Trade Closed: 2010-12-16 12:43

NZD/USD 4-hour Chart

Yipee! NZD/USD finally dropped and hit my profit target at .7420 yesterday. Thanks to good ole risk aversion, I was able to lock in a juicy 200-pip profit on this trade!

To be honest, I was really tempted to close this trade early when the pair started consolidating around the .7500 area. Even though I already moved my stop to protect my capital, I really wanted to go out with a win. After all, I could use some extra dough to buy some Christmas goodies and fill my nephews’ and nieces’ stockings with candy canes, gingerbread cookies, and chocolates!

Anyway, I could’ve ended up with a bigger win had I added when the pair retraced back to the trend line. As you can see from the chart I posted, the pullback lined up with the 61.8% level, which was another good area to short. The problem was, I wasn’t sure whether it was just a retracement or the start of a reversal. Maybe I better read up on the School of Pipsology‘s lesson on Retracements vs. Reversals again.

Here’s how it panned out:

P/L: 200 pips / +2.00%

Hopefully my next trade turns out as good as this one because I want to end the year strong. Make sure you watch out for my end-of-the-year recap coming soon!

Moved Stop to Entry: 2010-12-7 1:59

Yipee! So far, so good… I’m up around 100 pips right now! I don’t want to let this trade turn into a loser, so I’ll move my stop to break-even.

The RBNZ rate decision is less than a day away, and we all know how that can rock NZD/USD. I read Forex Gump’s blog earlier this week, and he said we probably won’t see a rate hike this time around, especially since inflation expectations are falling and New Zealand’s economic recovery is still a bit iffy.

But even though it seems like the rate statement may favor my trade, I’m not taking any chances. You never know what’ll happen! Australia surprised the world with a rate hike a month ago, so it’s not impossible for New Zealand to do the same. Besides, the central bank is also scheduled to hold a press conference and we might just hear a few Kiwi-boosting words from RBNZ Governor Alan Bollard. I think playing it safe and moving my stop to break-even is the smart thing to do at this point.

Trade Update: 2010-12-07 1:41

NZD/USD Chart

My short NZD/USD order at .7620 got triggered right after the U.S. employment report was released. Apparently, the employment situation there is getting worse as the jobless rate hit 9.8% in November. Yikes!

Because of that, the Greenback sold off like lemonade on a hot summer day, pushing NZD/USD up to my entry. The pair climbed a little higher than I expected, as it pulled up to the 61.8% Fibonacci retracement level. But now it looks like a descending trend line is forming, and I’m crossing my fingers that it’d hold!

The RBNZ rate decision is coming up this week and I’m thinking that their rate statement could contain cautious comments from the central bank officials. Plus, I heard that China is still planning to tighten their monetary policy further next year and this piece of news puts a bearish bias on the Kiwi. After all, New Zealand is closely linked to Australia in terms of trade, and tighter policies in China could have some damage on their export industries.

Trade Idea: 2010-12-02 2:55

NZD/USD Chart

Oh Kiwi, you’re no longer fine! Don’t worry, this is nothing personal, even though my long Kiwi trade last week cost me a handful of ‘em oh-so good Baby Ruth bars. Darn!

Anyway, I’ve got a few reasons up my sleeves why I’ve shifted my bias for the currency.

First is Europe’s sovereign crisis and the ongoing political clash in the Korean peninsula. I have a feeling that the rally we saw yesterday was just the bears’ way of saying, “Timeout!” But because none of the issues appear to have been resolved, I’m thinking that maybe market sentiment will switch back to risk aversion soon.

There’s also Chinese data which sent the com-dolls soaring with its better-than-expected Manufacturing PMI yesterday. Shouldn’t that be good for the Kiwi, you ask? Well, a few analysts caution that it might just convince the Chinese to raise rates. Yikes! This would be bearish for the Kiwi as a tighter monetary policy in China could curb demands for New Zealand’s exports. Duhn, duhn, duhn, duhn!

Lastly, I’m keeping my fingers crossed that the NFP report tomorrow would reel me in some pips. It can go either way. A positive report, implying that the U.S.’s road to recovery isn’t as bad as everyone thinks, can have traders running after the dollar like a candyholic chasing after human-sized Twix bar. Mmmm… Or, a worse-than-expected report could fuel risk aversion even more and send the Kiwi into the bear lair.

From a technical perspective, it looks like NZD/USD is retracing after reaching the .7400 area. I put up some Fibs on the 4-hour chart and noticed that the 50% level is closely in line with an area of interest. See how that .7620 area shifted from being a resistance level, to support, to resistance back again? Well, I’m hoping that it’d hold again and push the pair back to it’s recent lows.

Stochastic still hasn’t crossed on the 4-hour chart, which means that the bulls could still have enough energy to take this pair higher. That’s why my entry order is approximately a hundred pips away from the current market price. I set my stop above the psychological .7700 handle, which is also above the 61.8% Fib level. I’ll be aiming for support near .7400, giving me a nice 1:2 risk-reward ratio for this trade.

Here’s my recipe for pips this week:

Short NZD/USD at .7620, stop loss at .7720, profit target at .7420. I’ll be risking 1% of my account on this trade.

What do you think of this trade? Post your comments here or at MeetPips.com!

  • ForexLobo

    Dear HappyPip: I think is very Risky trade this pair before NFPR, anyway Good Luck.

  • ForexLobo

    Dear HappyPip: I think is very Risky trade this pair before NFPR, anyway Good Luck.

  • happypip

    Hi ForexLobo, thanks for checking out my blog! Yes, I admit, it was a pretty risky trade ahead of the NFP release. Then again, you gotta risk it to get the biscuit, right? It looks like it worked out well for me… so far.

  • Huck

    You’re awesome Happy!!! :D

  • RestInPips

    Hi Happy Pip,
    What a fantastic Idea! I managed to get a slightly better execution an now running a profit of around 140 pips on shorting Kiwi. Rock on!

  • happypip

    Hi ForexLobo, thanks for checking out my blog! Yes, I admit, it was a pretty risky trade ahead of the NFP release. Then again, you gotta risk it to get the biscuit, right? It looks like it worked out well for me… so far.

  • Huck

    You’re awesome Happy!!! :D

  • RestInPips

    Hi Happy Pip,
    What a fantastic Idea! I managed to get a slightly better execution an now running a profit of around 140 pips on shorting Kiwi. Rock on!

  • tbun

    Dear Happypip,

    Congratulations on the fantastic trade.

    I noticed that you put an order around the 50% Fib line. Do you wait for a sign of reversal (in the form of Japanese candlestick pattern or any other signs) to the downside before opening the position?

    Thanks.

  • ForexLobo

    Dear HappyPip: 15 minutes ago New Zealand give the economic news about their interesty rate, “3″, and the NZD/USD dawn to 0.7442 in this very moment. I Hope this pair go to 0.7420 and trigger your profit target. You have the reason, like always. Congratulations.

  • tbun

    Dear Happypip,

    Congratulations on the fantastic trade.

    I noticed that you put an order around the 50% Fib line. Do you wait for a sign of reversal (in the form of Japanese candlestick pattern or any other signs) to the downside before opening the position?

    Thanks.

  • ForexLobo

    Dear HappyPip: 15 minutes ago New Zealand give the economic news about their interesty rate, “3″, and the NZD/USD dawn to 0.7442 in this very moment. I Hope this pair go to 0.7420 and trigger your profit target. You have the reason, like always. Congratulations.

  • happypip

    Nice one, RestInPips! Let’s hope this carries on. Where’s your profit target?

  • happypip

    Hey tbun, I usually just try to look for possible areas of reversal or retracement based on trend lines, support and resistance, and the Fibonacci tool. As much as I’d like to wait for additional confirmation for my trade, such as candlestick patterns or momentum signals, I’m not able to stay in front of the monitor all day to wait for those signs. So far, pre-setting my trades works for me but it does have its risks.

    What about you? Do you set your orders at possible reversal levels or do you wait for candlestick confirmations?

  • happypip

    Thanks for the feedback ForexLobo! I was a bit iffy about keeping this trade open during the RBNZ decision, but I was expecting no rate hike from the central bank so I just moved my stop to my entry. Hope all is well with your trading!

  • tbun

    Hi Happypip,

    I am still learning to find the style of trading that suits me. I don’t enjoy and sometimes couldn’t spend time to wait for candlestick confirmations.

  • happypip

    Nice one, RestInPips! Let’s hope this carries on. Where’s your profit target?

  • happypip

    Hey tbun, I usually just try to look for possible areas of reversal or retracement based on trend lines, support and resistance, and the Fibonacci tool. As much as I’d like to wait for additional confirmation for my trade, such as candlestick patterns or momentum signals, I’m not able to stay in front of the monitor all day to wait for those signs. So far, pre-setting my trades works for me but it does have its risks.

    What about you? Do you set your orders at possible reversal levels or do you wait for candlestick confirmations?

  • happypip

    Thanks for the feedback ForexLobo! I was a bit iffy about keeping this trade open during the RBNZ decision, but I was expecting no rate hike from the central bank so I just moved my stop to my entry. Hope all is well with your trading!

  • tbun

    Hi Happypip,

    I am still learning to find the style of trading that suits me. I don’t enjoy and sometimes couldn’t spend time to wait for candlestick confirmations.