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Recent price action suggests that sellers are back in control of what has been a rangebound market in EUR/NZD. Is a retest of the bottom of the range in the cards?

Before you move on, for those who are not familiar with my framework, signals, setups, or acronyms, please visit my discretionary trading framework blog.

EUR/NZD 4-Hour Forex Chart
EUR/NZD 4-Hour Forex Chart

For the majority of 2016, EUR/NZD has traded in a range between 1.6150 to 1.7200, and in the last few months that range has seemed to tighten up a bit with the 1.6800 – 1.6900 area holding as resistance since March (a good sign for Kiwi bulls since that’s when the RBNZ cut rates). And throughout May sellers seem to have taken back the pair, and with that bit of price action confirmation, I’m ready to take a nibble short on EUR/NZD.

Fundamentally, New Zealand is still putting up shaky economic numbers (which supports another potential rate cut), but everything is all relative. The euro zone is on pretty shaky ground itself, and when combined with uncertainty from the constantly evolving Brexit situation and other external risk factors, the odds are probably higher that negative sentiment could creep back in on the euro vs. the Kiwi.

Overall, I like the Kiwi over the euro, especially as a way to take a nibble on long commodity exposure since they’ve been able to bounce back so far in 2016. But I’ll wait for a little bit more bounce higher to let the freshly released Fonterra global dairy data release to price in, currently putting pressure on the Kiwi at the moment.

My stop will be around my usual weekly ATR safety net and above recent swing highs, with my target around previous support areas that have held 1.5900 – 1.6150, forming the bottom of the 2016 range. Here’s what I’m doing:

Short half position EUR/NZD at 1.6620, max stop at 1.6975, profit target at 1.6000

Remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Create your own ideas and don’t follow what I do. Risk Disclosure.

I’m only risking 0.50% of my account on this one, and with this trade structure, I have a potential reward-to-risk ratio of about 1.75:1. If the market does get up to 1.6800, I will re-assess to see whether or not it makes sense to add on a second position to take it up to my usual 1.00% max risk, but increased potential gain.

Of course, anything can happen in the forex markets, so if the story changes I’ll be sure to reassess and adjust quickly if necessary. Stay tuned by following me on Twitter and Facebook!

Pipcrawler’s Q1 2016 Blog Trading Performance
Pipcrawler’s Favorite Trading Books

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.