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Checking out the downtrend in EUR/NZD to play the recent shift in interest rate speculation in New Zealand, and the potential for more stimulus to come for the Euro area.

Swing Short Setup on EUR/NZD

EUR/NZD 1-Hour Forex Chart
EUR/NZD 1-Hour Forex Chart

EUR/NZD bears have been on a tear last month, and after a bounce in last week, it seems that traders were quick to jump back on the trend lower right away.

It’s likely with broad risk sentiment leaning positive on the recent COVID-19 vaccine news from Moderna and Pfizer, and with a recent calming of negative interest rate speculation at the last RBNZ meeting, the Kiwi is poised to continue to make some gains in the short-to-medium term.

And I’m choosing the euro to play the Kiwi against, because with the rapid rise of coronavirus cases and recent lockdown measures to control it in Europe, it’s likely we’ll see more stimulus action, as expressed by ECB members in the media (e.g., ECB’s De Cos says governing council should increase monetary accommodation, Lagarde warns against vaccine optimism and hints at more ECB easing)

With this scenario in mind, I am looking to short EUR/NZD, but with conditions potentially oversold at the moment as signaled by the stochastic indicator, I’m looking for a pullback to the strong area of interest marked on the chart above.  We can see the area circled where the previous area of interest and falling ‘highs’ pattern intersects (around the 1.7300 handle), an area where technical traders may be watching to play the trend lower as well.

My stop will be a little over one daily ATR from my entry to give the trade a little bit of breathing room, and my max target will be a big one since I think there are big themes that could last that are driving the move lower. Here’s what I’m going to do.

Short half position EUR/NZD at 1.7290, max stop at 1.7460, max target at 1.6705

I’ll be risking only 0.50% of my account to start, and my max potential return-on-risk starts at 3.44:1. But depending on the data and shifts in market themes, I may add to this position if the market continues to push the pair lower. 

That’s it for now, stay tuned for updates / adjustments, 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.

This content is strictly for informational purposes only and does not constitute as investment advice. Trading any financial market involves risk. Please read our Risk Disclosure to make sure you understand the risks involved.