With not a lot of major events ahead, I’m going with a technical forex setup on NZDUSD. Will the trend higher continue after this pullback?
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I’ve got a very simple trend play higher on the NZD/USD four hour forex chart. The market has been trending higher since the beginning of the year, albeit at a slow grinding pace. After breaking strong resistance around the .6800 handle and nearly testing .7000, the pair has fallen back to a potential support area: the previous broken resistance level and the rising trendline connecting all of the lows. Also, we’ve got the stochastic indicator showing potentially oversold conditions, so there are a few arguments that would could see technical buyers on this pullback.
I also want to play this trend ahead of this week’s FOMC meeting minutes and Fed Chair Janet Yellen’s speech later in the week. While we may not see anything new from either event, if there is a surprise adding to the already bearish USD sentiment, I think this market would be a great way to play it. We also recently got positive news from Global Dairy Trade data (dairy is one of New Zealand’s top exports), so there may be underlying support in the Kiwi in the short-term.
So, I’m scaling into a long position in NZD/USD between current market prices and on a further pullback to the next major psychological level. My stop is around one weekly ATR away from the second entry level to give the trade plenty of room to breathe, and my max target is the major psychological level above that could draw in resistance on profit taking or just a lack of supply after a long run higher in Q1. Here’s what I’m doing:
Long half position NZD/USD at market (.6804), max stop at .6525, max profit target at .7000
Long half position NZD/USD at .6700, max stop at .6525, max profit target at .7000
I’m only risking 1.00% of my account on this one, and with this trade structure, I have a potential reward-to-risk ratio of about 1.21:1 if both positions are triggered. 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!
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