It’s FOMC day, fellas! Think the dollar could have more gains up its sleeve? If we do see more momentum, I’m gonna be ready with this breakdown setup on NZD/USD.
NZD/USD Trade Idea
On the pair’s daily time frame, it can be seen that price already broke below a long-term ascending trend line, signaling that a reversal from the climb is in order. However, NZD/USD has stalled around the .6900 major psychological mark, which happens to be a former resistance level and strong area of interest.
The Kiwi has been reeling from Fed rate hike expectations as higher borrowing costs in the U.S. would spill over to the global economy, dampening spending and business activity. In turn, this could lead companies to dial back production and reduce demand for raw materials and commodities – something that the New Zealand economy relies heavily on.
Even though this week’s 0.25% rate hike has long been priced in, I think the Greenback could get another big boost from upgraded growth and inflation forecasts and assurance that the U.S. central bank would stay on track towards hiking three times this year. Analysts are projecting a 60% chance of a rate hike in June and an 80% chance in September so any remarks that could boost the likelihood of tightening might mean more dollar gains.
And don’t forget that New Zealand is set to print its Q4 GDP just a few hours after the FOMC presser! Weaker growth of 0.7% is expected, compared to the earlier 1.1% expansion, and sliding PMI readings from the economy seem to suggest a downside surprise.
Now the Kiwi has been one of the most vulnerable currencies to dollar strength and risk aversion recently so there could still be some room for NZD/USD to fall. Once it gains bearish momentum, I’m gonna set my sights on the long-term lows near the .6400 mark with a stop above the .7000 major psychological resistance.
Here’s my plan:
Short NZD/USD at .6825, stop loss at .7025, profit target at .6425.
I’ll be risking 0.5% of my account on this setup for a potential 2:1 return-on-risk. Don’t forget to check out our risk disclosure if you’re trading this one, too!
See also: Q4 2016 Trading Performance Review
This content is strictly for informational purposes only and does not constitute as investment advice. Trading any financial market involves risk. Please read our Risk Disclosure to make sure you understand the risks involved.