GBP/NZD bulls have solidly been in control for the past few weeks but it looks like the rally has run out of steam. Just a pause before further moves higher?
The likely cause for pause this week is possibly the upcoming monetary policy meetings from both the Reserve Bank of New Zealand and the Bank of England. Economic data has improved for both countries, so it’s a low probability we’ll get dovish economic commentary from either Bank, but I think we may hear concerns from the RBNZ on their exports because of recent concerns with China’s economy slowing down (New Zealand’s largest export destination). As far as the BOE, there was an openness to hike rates at the last policy meeting, and I think we’ll likely hear the same after seeing unemployment, inflation, and sentiment survey data remain strong recently.
So, I’m fundamentally short-term bullish on the pound over the Kiwi, which aligns with recent price action, which before the pause, saw a strong rally in GBP/NZD going back to March. Volatility will likely pick up again with the upcoming central bank events, and unless we get new insights from either central bank that changes the fundamental picture, I’m inclined to go with the trend higher.
Because of the central bank events coming soon, I’m going with a conservative setup by waiting for a retest of recent support and my stop of two times the daily ATR. And because I’m going with the fundamental & technical trend, I’m keeping my target open, but looking to adjust the major broken support area that held back in 2015. Here’s what I’m doing:
Long half position GBP/NZD at 1.8600, max stop loss at 1.8275, initial target at 1.9250 for a potential 2:1 return-on-risk.
I’ll be risking only 0.5% of my account on this position and I’ll look to re-assess to potentially reduce my risk and maximize my gain if I’m triggered and the market still has strong upward momentum around that 1.9250 handle.
As always, 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 simply follow what I do.
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