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A simple technical setup and a likely pick up in volatility next week makes GBP/NZD the play of the week if the price is right.

GBP/NZD Resistance Break-n-Retest

GBP/NZD 4-Hour Forex Chart
GBP/NZD 4-Hour Forex Chart

GBP/NZD bulls have been riding the pair higher in the last week since the disappointing report on New Zealand’s consumer prices sparked further rate cut speculation. The pair did find resistance around the 1.9400 – 1.9450 area before busting higher this week to eventually hit highs around the 1.9600 handle.

Since then, the pair has fallen and is retesting the broken resistance area, which could potentially draw in technical traders looking to get into the uptrend at a better price. I’m one of those traders, but the question now is whether the fundamental drivers add to the bullish argument over the next week or so.

Next week, we’ve got the latest quarterly update on New Zealand’s employment situation and the Bank of England’s latest monetary policy decision to likely bring in a pop in volatility for GBP/NZD. After looking at the latest PMI data from New Zealand, it’s likely the jobs number will disappoint relative to the last quarter, which should support the uptrend in GBP/NZD.  So, I think this catalyst has a good chance of being beneficial for a long position and I’d like to get in at a better price.

Even though the pair has already fallen a couple of hundred pips, I’d like to see it retest the strong area of interest around 1.9400 before taking my first nibbler trade. My stop will be the daily ATR since I don’t play on hanging on this trade for too long, and my target will be the recent swing high for a good short-term potential return-on-risk.  Here’s what I am doing:

Long GBP/NZD with 0.50% risk at 1.9400, max stop at 1.9230, max target at 1.9600

I’m only risking 0.50% of my account on this trade and I’ve got a potential return-on-risk of 1.17:1, which is not bad for a trade I hope to exit before the Bank of England’s monetary policy decision a couple of days later. If my orders don’t trigger ahead of the BOE meeting, I’ll re-assess and likely cancel them out.  What do you guys think? Let me know in the comments section below!

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