With risk sentiment shifting back towards positive and the RBNZ meeting ahead, I’m taking a shot at this simple chart pattern on EUR/NZD.
EUR/NZD Fib Short Play
Taking a shot at EUR/NZD this week as it looks like negative global risk sentiment seems to be fading a bit. News of work on a vaccine last week, plus signs that the rate of spreading may be slowing has traders lightening up on safe havens in the past few sessions. It’s also likely supportive of risk-on sentiment that China has taken many measures to reduce the massive economic damage this disease may be causing.
Besides the reversal in global risk sentiment, the RBNZ will be giving their latest monetary policy decision, and with recent economic data from New Zealand mostly net positive (NZ unemployment has fallen to 4.0% from 4.1%, while wages have risen by 2.6% / 2-year inflation expectation in New Zealand higher in Q1 2020), I think the odds are pretty low of a rate cut announcement by the RBNZ this meeting. And I think it’s likely the RBNZ will signal a “wait-and-see” attitude because of the Coronavirus story, further lowering the odds of a rate cut for now, another bullish NZD argument.
With those thoughts in mind, I’m going to put up a short order on EUR/NZD, and because this is the RBNZ who has surprised the markets in the past, I’m going to be pretty conservative with my entry strategy (i.e., small position, wide stop, shorting at a higher price). Here’s what I’m doing:
Short half position EUR/NZD at 1.7150, max stop at 1.7450 with 0.50% max risk, max target at 1.6650
I’ll be risking 0.50% of my account with a 1.67:1 return-on-risk to start. If triggered this week and if the RBNZ does indeed signal no rate cuts for a while, I may look to add to the position to maximize my potential gains as long as the market stays under that 61% Fib area marked above. If they surprise us with a more dovish than expected statement, I’ll cut my trade if my short orders were triggered, or I’ll close any open short orders if haven’t bit hit yet.
That’s it for now. Stay tuned for updates 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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