GBP/NZD sellers came out of the woodwork, breaking a major support area. Is there more room to run or is a bounce ahead?
Before moving on, ICYMI, today’s Daily London Session Watchlist looked at an opportunity forming on EUR/USD ahead of the ECB monetary policy statement, so be sure to check that out to see if there is still a potential play!
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Fresh Market Headlines & Economic Data:
Upcoming Potential Catalysts on the Economic Calendar
Bank of Canada Beaudry speech at 6:30 pm GMT
U.S. Federal Budget Balance at 7:00 pm GMT
New Zealand Manufacturing Index at 9:30 pm GMT
New Zealand Food prices at 9:45 pm GMT
What to Watch: GBP/NZD
On the one hour chart above of GBP/AUD, we can see the pair taking a dive on the session, likely on the big sell off in Sterling as the odds of a no-deal Brexit continue to rise (No-Deal Brexit More Likely After Dinner Fails, Officials Say). The pair move almost double its daily ATR (around 180 pips) on the session, breaking below a rising ‘lows’ pattern and a major support area around the 1.8850 minor psychological level.
As mentioned in yesterday’s Daily Watchlist post on GBP/AUD, the Brexit outcome is highly uncertain with a potential scenarios ranging from no-deal, to deal, or to extend the talks. Right now, “no-deal” is being priced in but that could change quickly.
If you’re in the “no-deal” camp, this breakdown in price action may be for you, but after a nearly 2x daily ATR move, a bounce might be right around the corner, especially with stochastic signaling potentially oversold conditions short-term.
It may be a good idea to wait for a bounce back up to the broken support area (between 1.8850 – 1.8900) before considering a short position. But if you want to be a little more aggressive, considering scaling into a short position, starting with nibbler positions near market up to the broken support area.
For the GBP/NZD bulls who expect a deal to come soon (potentially this weekend?), scaling into a long position at market down to the 1.8600 handle makes sense short-term, but given the drivers and price action, this is a highly risky move. If you’re looking play it, keep the position size small and be ready to react if the “no-deal” scenario does play out.