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For my first trade setup for the year, I’m looking at this textbook trend play on the 4-hour time frame of EUR/NZD. Bounce or break?

Short EUR/NZD Idea

As Forex Gump shared in his weekly outlook, this pair has been cruising below a descending trend line for the past couple of months. Price has since pulled up to test this resistance area that lines up with the Fibs.

To be specific, price is testing the 50% Fibonacci retracement level that coincides with the 1.6800 major psychological handle. A larger pullback could still reach the 61.8% Fib, but stochastic looks ready to turn from the overbought region already.

EUR/NZD 4-hour Forex Chart
EUR/NZD 4-hour Forex Chart

If resistance holds, EUR/NZD could slide back to the swing low just above 1.6600 or lower. Moving averages confirm this bearish trend for the pair.

EUR/NZD Trend Analysis from MarketMilk
EUR/NZD Trend Analysis from MarketMilk

However, I’m a tad concerned about current geopolitical risks that could drag the higher-yielding Kiwi lower. For one, there’s the conflict between the U.S. and Iran that could send traders fleeing to lower-yielding currencies like the euro.

Economic data from the region has also been mostly upbeat so far, and the upcoming flash CPI readings could print improvements as well. There are no major reports due from New Zealand, so most of the Kiwi’s price action could hinge on overall sentiment.

So far, things are looking up on the U.S.-China trade front, with Trump previously mentioning that they’re ready to sign Phase One of the deal by the middle of this month. This could prove bullish for commodity currencies as it would revive global business optimism.

I’m considering scaling in at market and the 61.8% Fib (1.6850) with a stop wider than the pair’s max average movement of 112 pips.

EUR/NZD Volatility from MarketMilk
EUR/NZD Volatility from MarketMilk

As for my target, I’ll set my sights on the swing low first. This should give me close to a 2:1 potential return-on-risk with this setup.

Should price break past all these strong resistance levels, I’m also open to switching sides, especially if it’s a big news-driven move. What do you guys think?


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