Sterling has been on a nice run higher in the past week, and the long GBP/NZD setup from the weekly watch looks like a great way to play the bullish move.
GBP/NZD Trade Idea
In this week’s Weekly Crosses Watch, I highlighted an inverted head-and-shoulders pattern on GBP/NZD that’s also testing a major area of interest. The 1.9100 – 1.9200 area was a strong support area between 2011 through 2014, and GBP/NZD consolidated in the same area from the end of 2017 through 2018.
After spending some time below 1.9000, GBP/NZD is back higher, recently on positive sentiment for the British pound that a “no-deal” Brexit becomes less likely every day.
Of course, who knows how Brexit will turn out since this type of situation has never happened before, but I’m kinda in the camp that thinks they’ll do whatever it takes to avoid the disastrous outcome that having no deal would bring. With that said, it’s still a possibility but the market thinks it’s pretty low at this point.
So, I’m still bullish on GBP/NZD and with no major economic events for either the U.K. or New Zealand until February, price action may continue to flow with Brexit developments. But with a divergence pattern signaling a potential pullback may be ahead, I’m looking for a more conservative entry to play the trend higher.
The broken swing high around 1.9000 looks like a great place to take a nibble, and by using the weekly ATR for my stop and the previous swing high back in October as my target, I’ve got pretty good R:R potential for this trade. Here’s what I’m doing:
Long half position at 1.9000, max stop at 1.8590, max target at 2.0400
I’m only risking 0.50% of my account on this trade and if it goes my way all the way to my target, I’ve got a potential return-on-risk of around 3.4:1. What do you guys think?
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