Not seeing a lot on the higher time frames at the moment, but this setup on GBP/NZD stands out as it looks like I can play my fundamental bias for a potential short-term gain.
Short-term Fib Play on GBP/NZD
Fundamentally, I’m not a fan of the British pound given that there are so many negatives going on for the U.K. at the moment. Besides the COVID induced economic weakness(e.g., Employment falls 600,000 since lockdown as UK faces ‘biggest jobs crisis in at least 25 years), Brexit uncertainty continues to rise (EU parliament leader: Boris Johnson seems unwilling to find compromise in Brexit talks).
On the other side of the coin, I like the Kiwi over most of the majors at the moment as New Zealand gets nearly back to normal after handling the coronavirus pandemic better than most other countries. While it’s possible for the pandemic and lockdowns to return, it’s highly unlikely at the moment, so the odds are really low that we’ll see any more stimulus measures from the RBNZ, making the Kiwi relatively more attractive than the British pound for now.
In terms of price action, GBP/NZD has been in a massive downtrend, but we’re getting a bounce this week that could be another opportunity to play the trend at a better price. On the one hour chart above, we can see the pair already testing the Fibonnaci retracement area of the most recent swing move lower, and when combined with the overbought stochastic signal, the odds are pretty good traders will take it as a signal to get back short.
With all of that said, I’m taking a short position at current levels for a short-term play. My stop will be above the Fibonacci retracement area, and my target will be beyond the recent swing lows since the overall trend is lower and the fundamentals support this direction. Here’s what I’m doing:
Short half position GBP/NZD at market (1.9260), max stop at 1.9360 with 0.50% risk, initial target at 1.9010
I’ll be risking only 0.50% of my account to start with an initial 2.5:1 potential R:R. I may add to this position once the recent support area around 1.9150 breaks and adjust my exits, if it makes sense to do so based on the market themes at the time.
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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