I’m seeing a classic reversal pattern on the daily time frame of NZD/USD, but I wanna wait for more bearish confirmation before hopping in. Check out my trade idea!
NZD/USD Trade Setup
As I’ve shown y’all in my Comdoll Trading Kit for this week, NZD/USD is forming a head and shoulders pattern, signaling that the recent uptrend might reverse. Price has yet to break below the neckline around the .7050 level to confirm the potential selloff, and this support zone lines up with the mid-channel area of interest visible on the longer-term charts.
A break below this level could send the Kiwi down by 400 pips or the same height as the chart pattern or at least until the channel support around .6850-.6900. Stochastic is pointing down so there’s some selling pressure left, but the oscillator is already dipping into the oversold region.
Because of that, I’m inclined to wait for a break of the head and shoulders neckline first then consider entering on a pullback. There’s no shortage of catalysts from both the U.S. and New Zealand this week so I think we’ll see enough volatility for this pair.
For today’s New York session we’ve got the U.S. retail sales figures for October, with the headline report expected to show another 0.6% uptick and the core reading projected to post a 0.5% gain. Soon after, it will be New Zealand’s turn to release its quarterly retail sales readings and weaker results are eyed compared to the previous period, possibly giving the Kiwi a push lower.
Since I won’t be able to watch price action around those times, I’ll just have to wait until the next Asian session to see how the reports turn out and if my trade idea is still valid by then. If price continues to consolidate above the .7050 area, it might have a few more potential movers lined up in the form of U.S. PPI and CPI, as well as New Zealand’s quarterly PPI. To top it off, Fed head Yellen has a testimony lined up in Thursday’s U.S. session and any hawkish hints could convince dollar bulls to charge again.
Here’s what I’m planning:
Short NZD/USD on a pullback to .7050, stop loss at .7325, max PT at .6625 for a 1.54-to-1 R:R. I’ll be risking 0.5% of my account on this setup and moving my stop to entry or closing partially once price tests the .6850 level.
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See also: Q3 2016 Trading Performance Review
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