For the new week, I’m going with this strong longer-term uptrend on EUR/NZD and the recent pullback that could be solid opportunity to get on the train!
Trendline Retest on EUR/NZD
EUR/NZD has been in a sweet uptrend this year since bottoming out around the 1.4600 handle back in February, likely due to the ongoing speculation of quantitative easing tapering by the ECB as euro area economic data improves. But we saw a recent slide in price over the last trading week thanks to some dovish comments from ECB President Mario Draghi, pledging low interest rates past whenever they end the bond-buying program that could give the bulls an opportunity to get in at a better price.
I’m in that camp because despite those dovish comments, I still see the focus for the euro being QE tapering, so I think this pullback in EUR/NZD is an opportunity to play the uptrend, especially since yesterday’s good New Zealand CPI quarterly data (0.5% vs. 0.0% previous) didn’t spark much of a rally for the Kiwi. This is likely because of the recent New Zealand elections and the uncertainty of its next government at the moment holding back traders from taking on risk after a pretty good inflation number.
With these current conditions, I’d like to buy some EUR/NZD, but I will do so cautiously with Mario Draghi speaking this week and the European Central Bank monetary policy meeting next week. Volatility can expand quickly with those events, so I’ll wait for a bit more pullback into the prior consolidation area marked on the chart above around 1.6300, which also coincides with the rising trendline connecting recent lows (and with stochastics showing potentially oversold conditions).
My stop will be one weekly ATR to give the trade breathing room, and my initial target will be the recent swing high last seen a few sessions ago before Draghi’s dovish comments. Here’s what I’m doing:
Long half position EUR/NZD at 1.6300, max stop loss at 1.5965, initial target at 1.6750 for an initial potential 1.34:1 return-on-risk
I’ll be risking only 0.5% of my account on this position and as usual, I’ll look to make adjustments if my first target is reached, and likely add to my position/roll stop up to max out the trade if we get significant catalysts for further upside moves.
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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