This week, I’m going back to the basics with this simple forex retracement play on NZD/USD. What do you think of this short-term trade setup?
As you can see from the 1-hour forex chart above, the pair recently broke below a support area around the .7800 major psychological mark. Since then, price has dipped close to the .7700 mark before showing signs of pulling back. Using the Fib tool on the latest swing high and low reveals that the 38.2% Fibonacci retracement level lines up with the broken support zone.
Stochastic is moving higher, indicating that Kiwi bulls could take the pair back up to the .7800 area before bears take over. In addition, economic releases from New Zealand such as the Global Dairy Trade index and the quarterly jobs report might spark mid-week volatility for the pair.
Towards the end of the week, traders’ attention could shift back to the U.S. dollar, with the non-farm payrolls report up for release on Friday. I’m gonna keep close tabs on the labor components of the ISM PMI reports and on Wednesday’s ADP non-farm employment change release to gauge whether an upside NFP surprise is likely or not.
I’m looking at a potential entry area around the .7800 handle with a stop above the highest Fib level. I’ll be aiming for new lows since dollar bulls seem to be on a roll, but I plan to trail my stop once price hits the previous lows around .7700.
What do you think? As always, I look forward to receiving and responding to your feedback on my ideas!
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