Taking a look at short-term shot on EUR/NZD as volatility could pick up with economic catalysts ahead from both New Zealand and Europe.
EUR/NZD Support Retest Ahead?
This week, I’m checking out EUR/NZD as we’ve got potential for a pick up in volatility from the upcoming Reserve Bank of New Zealand monetary policy statement. The meeting is right around the corner at 2:00 am GMT on Aug. 12th, and while the expectations are for no change to policy, I think we may get a bearish lean in commentary from RBNZ Governor Orr.
Recent data shows the recovery in New Zealand hasn’t been that impressive, and given that COVID-19 cases have picked up globally since the latest meeting, including a spike in New Zealand, I’m not sure what the Governor can be optimistic about.
I’m taking that bearish lean on the Kiwi against the euro, which has seen economic numbers and sentiment broadly improving (Final Eurozone Manufacturing PMI at 51.8 in July), and is likely to benefit more than the other majors in a persistently weak USD environment.
Looking forward, we don’t really have major economic catalysts from Europe until near the end of August (the next round of manufacturing & services PMI numbers), so it’s likely the markets will continue to lean bullish on the euro for the time being.
With those thoughts in mind, I’m looking to start a long EUR/NZD position for a swing trade, and I’d like to get in on the slow trend higher at a better price. The potential pick up in volatility could take the pair back to the downside and retest the major support area around 1.7740 marked on the chart above. It’s there that’ll I’ll put my nibbler orders and see where the market takes me before getting bigger.
My stop will be one daily ATR away from that support area, which would clearly be a signal that the bears are in control. My max target will be two times my risk to start, but I do look to add to the position if it makes sense to do so. Here’s what I’m doing:
Long half position on EUR/NZD at 1.7755, max stop at 1.7625, max target at 1.8015
I’m only risking 0.50% of my account and I’ve got a solid short-term potential return-on-risk of over 2.00:1 to start. If triggered, I plan on adding to this trade/rolling up my stops if the pair rallies higher to maximize my potential gains/reduce risk. And of course, if the story changes for either currency, I’ll be sure to cut the trade away quickly and move on to the next one. .
Be sure to manage your risk and avoid overexposure.
What do you guys think? Are you watching EUR/NZD for a potential long position as well, or do you see a drop coming soon? Let me know in the comments section below!
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