With the RBNZ monetary policy decision right around the corner, I thought there’s no better currency to play this week than the Kiwi with GBP/NZD’s uptrend in my sights.
Playing the Uptrend in GBP/NZD
In case you haven’t heard, the latest Reserve Bank of New Zealand (RBNZ) is meeting this week, which means likely volatility ahead for the Kiwi as traders price in the latest thoughts and decisions from the central bank.
I’d like to use that potential spike in volatility to play a simple technical setup in GBP/NZD, which has basically been in an uptrend since bottoming out mid-August around 1.7500 – 1.7600.
I’m going to be patient with my entry as there is a technical argument for a pullback in the form of divergence between price and the stochastic indicator. We can clearly see higher “highs” in price while the stoch is making a lower “high,” and its happening at a previous resistance area.
Fundamentally, a pullback could be sparked by the RBNZ coming out with rhetoric & decisions inline with the expectations highlighted in Forex Gump’s event preview, which seem to be priced-in before hand with the Kiwi falling throughout this week and could reverse after the event (i.e., “buy-the-rumor, sell-the-news” reaction).
If a drop in the pair does happen, I’m looking to go in long around the recent swing lows from last week to play the uptrend and my fundamental bias in Sterling over the New Zealand dollar (positive U.K. data/potential BOE rate hike vs. New Zealand’s recent weaker-than-expected growth numbers/inflation data). My stop will be my usual one weekly ATR to give the trade room to breathe, especially around a central bank meeting, and I’m keeping my max target open with an initial adjustment target around the recent swing highs. Here’s what I’m doing:
Long half position GBP/NZD at market 1.8400, max stop loss at 1.7970, initial target at 1.8950 for a little over 1.28:1 return-on-risk potential to start.
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’s potential if there isn’t significant change in the economic/geopolitical picture.
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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