This week, I’m keeping it simple with this textbook resistance setup on NZD/USD. Is the USD selloff overdone? Have the Kiwi bulls running out of steam?
NZD/USD Short at Previous Resistance
This is mainly a technical trade, but I’m fundamentally biased on the Greenback over the Kiwi with economic conditions in the U.S. edging out over New Zealand. Both countries are seeing positive signs, but inflation conditions continue to be a concern for the Kiwis, and the economic divergence is so much so that we’ve got the FOMC on a rate hike path vs. the RBNZ, who downplayed improvements in inflation and downgraded their growth outlook.
Technically, NZD/USD is approaching a strong resistance area that has turned away the bulls twice previously in March and April. Stochastics are showing potentially overbought conditions, so there’s a chance the bears could be eyeing this area as a potential sell opportunity.
I’ll take a shot at a short-term play if the market does creep higher to the minor psychological level, with my usual stop of at least 2x the daily ATR. My initial target will be the recent swing low, but I’ll keep my max target open in case we do get some downside momentum. Here’s what I’m doing:
Short half position NZD/USD at .7050, max stop loss at .7170, initial target at .6850 for an initial 1.6:1 return-on-risk potential.
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 downward momentum around the previous support area around .6850.
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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