Pound bulls are getting a glimmer of hope for a two-year Brexit transition period which could ease economic uncertainty and keep the BOE on track for a hike. Here’s what I’m watching on GBP/NZD.
Long GBP/NZD Idea
On the daily time frame, I’m seeing an ascending channel forming for GBP/NZD but price is stalling around the mid-channel area of interest while waiting for more buyers to come through.
The consolidation looks like a bullish flag to me as this formed after a strong rally off the channel support.
Zooming in to the short-term time frames gives a clearer view of the support and resistance levels on the chart pattern. Price just bounced off the bottom and is heading for the top, possibly even going for an upside break from here.
I’m waiting for a move past the 1.8750 minor psychological resistance to confirm that bullish momentum is once again kicking in and might be enough to sustain a climb all the way up to the long-term channel resistance around 1.9200-1.9300.
I’ve had a bullish pound bias for quite some time but I was hesitant about hopping in a long position due to resurfacing Brexit concerns. Negotiations had been moving at a snail’s pace and Prime Minister May appeared to be losing support from her peers, so I figured I’d wait for more clarity before taking any pound trades.
Still, U.K. economic data has shown consistent improvements, which means that a BOE rate hike might still be on the table. Inflation has been ticking higher but is taking its toll on consumer spending, so the central bank needs to act quick to keep price levels in check.On the other hand, I’m Kiwi bearish because of the RBNZ’s relatively neutral stance and mostly downbeat reports from New Zealand lately. To top it off, political uncertainty is still in play after the elections failed to generate a majority.
I haven’t set actual buy stop orders yet but I’m looking to go long around 1.8775 with a wide stop below the flag bottom and 1.8300 mark. I’ll set my sights on the large channel resistance around 1.9300 as my target but will be ready to trail my stop once bullish momentum picks up. What do you guys think?
See also: Q3 2017 Trading Performance Review
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