Long-term Short Setup on NZD/USD
On the weekly chart above of NZD/USD, we can see that after the major bottom the pair put in during the height of pandemic lockdown (around 0.5465), the market has recovered significantly to trade at levels even higher before the coronavirus pandemic started.
But with the pandemic still growing as cases continue to rise around the world, and the possibility of lockdowns to slow the global recovery, we may be in for another round of major market uncertainty and risk-averse behavior–an environment that tends to favor safe haven currencies like the U.S. dollar.
We’ve also got speculation going on that the Reserve Bank of New Zealand may move towards negative interest rates after they hinted of more stimulus for the economy is needed at today’s monetary policy statement.
his could bring on a fresh round of pressure on the Kiwi as expectations are now that we may see some form of stimulus from the RBNZ at the next monetary policy meeting, and possibly a rate cut to negative sometime early next year.
So, the fundies currently lean in favor of the Greenback over the Kiwi at the moment, and with the pair retesting a major area of interest around the 0.6800 handle, technical traders may be in on the bear bandwagon as well if the currency pair continues to fail to break higher.
I’ve decided to take a longer-term shot on the pair given the fundies and technical setup, and when targeting the 2020 lows with a relatively tight one to two weekly ATR stop, the potential return-on-risk is highly attractive. Here’s what I did:
Short full position NZD/USD at market (0.6542), max stop at 0.6850 with 1.00% risk, max target at 0.5600
I’ll be risking only 1.00% of my account with a 3:1 potential R:R at my max target. I may add to this position depending on what we see going forward, and if the data and market sentiment shifts and favors the Kiwi over the Greenback, then I may close the down the position right away.
This will likely be the move if the Fed comes out with another massive stimulus program once again.
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.
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