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Decided to put a little risk on that longer-term EUR/NZD setup after seeing some divergence in this week’s price action.

Divergence on EUR/NZD?

EUR/NZD 1-Hour
EUR/NZD 1-Hour

Fundamentally, nothing has really changed since last Thursday, so my arguments for a downward bias still remain from my last post.  The only thing I would add is that we have European Central Bank President Mario Draghi speaking at this week’s Jackson Hole Economic Policy Symposium to potentially light some fire under euro volatility.

The focus for traders is whether or not he’ll give any specifics on if or when the ECB will taper monetary policy, and odds are that he’s not going to say much during this week’s speech.

So for me, I’m thinking a little bit of short-term weakness could be in the cards for the euro, and it may be time to play that through EUR/NZD now that I have a short-term bearish signal in the form of a divergence between price and the stochastic indicator. With a fresh swing “high” on the one chart lining up with a lower “high” in stochastic, I think bears could be taking charge around here.

So, I’m hopping in market here with a stop just above the double top marked on the chart, which should be me enough breathing room this week. My initial target is the next potential support area around the early August swing low.  Here’s what I’m doing:

Short half position EUR/NZD at market (1.6123), max stop loss at 1.6265, initial target at 1.5850 for an initial 1.88:1 return-on-risk potential.

I’ll be risking only 0.5% of my account on this position and if EUR/NZD gets down to my initial target, I’ll re-assess to see if it makes sense to turn this short-term setup into a longer-term one for a bigger potential gain.

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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