Event risk from both Australia and New Zealand prompted a strong move in AUD/NZD on the session, enough to break strong support and draw in traders to push the pair down to my max stop loss level. Here’s a quick review.
AUD/NZD Uptrend Pullback
In mid-August, I decided to buy AUD/NZD to play the trend higher, lifted by improving economic data from Australia and speculation that negative interest rates may be an option the RBNZ implements.
I didn’t anticipate new catalysts any time soon to derail the driving themes for the rest of August, so I scaled into a long position, starting at market above the rising ‘lows’ pattern (1.0971) and just above a major psychological level (1.0910) for an average price of 1.0930 with a 1.00% max risk.
Largely, I was right in that we didn’t get any catalysts to spark a reversal in sentiment in August; actually the pair traded sideways for the rest of the month. It wasn’t until today that we did get fresh catalysts that shook up the pair, unfortunately for me, pushing it to the downside. The 1.0900 major psychological handle broke easily after Australia printed a -7.0% GDP decline (weaker-than-expected, and comments from RBNZ Governor Orr (he’s not concerned with the exchange rate) that seemed to have sparked bullish sentiment on the New Zealand dollar.
That breakdown of 1.0900 quickly drew in sellers, pushing the pair to my max stop level of 1.0840 to close my position for a very small loss.
Total: -90 pips avg. / -1.00% loss on 1.00% max risk
Looking back, I don’t think there’s much I could have done differently before the pair broke the 1.0900, other than close the trade to avoid event risk. Technically, the pair is still in an uptrend going all the way back to March, and the fundamentals remained unchanged going into today’s session.
Also, I thought with 1.0900 holding strong last week, I thought even if AU GDP was weaker-than-expected, it would halve to be a really bad number for the pair to break lower.
What I didn’t expect was the bullish NZD reaction to RBNZ Governor Adrian Orr’s speech and Q&A session. That caught me off guard and this time, it made the case for closing ahead of event risk as the smart thing to do.
Looking forward, I don’t know if this new move lower will have legs, but with the RBNZ still open to negative rates, I’m staying long biased for now. If the market sees this as a pullback and starts to bid the pair up again, I may look to give this longer-term uptrend a second short.
Stay tuned for that, and 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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