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Taking a short-term shot on GBP/NZD this week with potential catalysts coming from both the U.K. and New Zealand.

GBP/NZD Short Play

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

It’s highly likely we’ll see some action in Sterling this week with the latest monetary policy decision coming from the Bank of England on Thursday.

Expectations are for the interest rate to hold at 0.10%, but we could see an increase in asset purchases as recent U.K. GDP and employment data severely disappointed.

With these expectations, I’m leaning bearish on Sterling in the short-term and will take a position to play that against the New Zealand dollar.

The Kiwi has benefited from the “reopening trade” that’s taken place since the pandemic bottom back in March, and with New Zealand pretty much beating the coronavirus and pumping out improving sentiment numbers, I think there will be underlying support for the New Zealand dollar if global risk sentiment stays positive.

And we could get a positive catalyst to support NZD further if the upcoming NZ GDP report comes in above the 1.0% Q1 2020 expectations.

With that, I’m looking to short GBP/NZD, but with the BOE meeting ahead, I’m going to be conservative with my entry strategy.

On the four-hour chart above, we can see the pair has been consolidating this month between 1.9400 – 1.9600, but the downtrend is still intact.

I’m looking to play that downtrend at a better price, so I’m setting my short orders in the Fib area, where we could see potential resistance.

My stop will be above the Fibonacci retracement area, and my target will be the recent swing lows for a solid short-term potential return-on-risk. Here’s what I’m doing:

Short half position GBP/NZD at 1.9675, max stop at 1.9915 with 0.50% risk, max target at 1.9380

Short half position AUD/NZD at 1.0775, max stop at 1.0840 with 0.50% risk, initial target at 1.0500

I’m only risking 0.50% of my account and I’ve got a solid short-term potential return-on-risk of around 1.22:1.

Based on what happens with the previously mentioned catalysts and with how the pandemic and global economy develops, I may change this plan if it makes sense to do so. If my orders are not triggered by the end of this week, I will cancel the trade.

Be sure to manage your risk and avoid overexposure.

What do you guys think? Are you watching GBP/NZD for a potential short-term position as well? Let me know in the comments section below!

This content is strictly for informational purposes only and does not constitute as investment advice. Trading any financial market involves risk. Please read our Risk Disclosure to make sure you understand the risks involved.