It looks like traders shifted sentiment on the Greenback big time, pushing me to close out my NZD/USD for a small scratch. Here’s a quick review.
Wedge Breakdown on NZD/USD
Back at the end of April, I originally shorted NZD/USD on a wedge breakdown at Fibs on the daily timeframe. And after the RBNZ cut rates, that added to my conviction on the trade as the fundamental picture of the Fed was standing neutral on future interest rate moves at the time, while the RBNZ was expected to cut rates further raised the probability of further moves lower. I added my second position at 0.6550 (while rolling down my stop to 0.6650) to maximize my potential gain while limiting my risk, putting me in at an average position price at 0.6604.
Unfortunately for my trade, 0.6500 proved to be a major hurdle the bears couldn’t overcome, especially last week as the surprise announcement of tariffs on Mexico by the U.S. sent market players to start pricing in a weaker economy, and thus, the probability of Fed rate cuts started to be priced into the markets. For currencies, this meant a big dollar selloff that started on Friday and hasn’t really slowed down since.
With this big shift in U.S. dollar sentiment and uncertainty on further trade developments will pan out, I decided to just close this trade at market (0.6618) to cut out with a very, very small loss:
Total: -14 pips / -0.07% loss on 0.50% original risk
Overall, this loss did irk me a little bit as I was up nicely when the pair was trading around 0.6500, so it was a winner that turned into a small loser. Fundamentally, the trade still made sense despite the support at 0.6500, but in hindsight I probably should have locked in further profits on the second bounce higher from that level.
Besides that, a very good trade that just ran into bad luck with the surprise announcement and shift in Greenback sentiment. For now, I’ll shift with the rest of the market on the Greenback, but take a little time to do more work to see if it’s a trade that’ll work through June. Stay tuned!
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