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Political uncertainty is keeping me pound bearish while improving fundamentals favor the Kiwi, so I’m going for a short GBP/NZD play.

Short GBP/NZD Idea

On the pair’s 1-hour chart, I’m seeing a short-term descending channel that’s just forming, with price gearing up to test the resistance.

At the same time, stochastic is indicating overbought conditions so selling pressure could return at some point and push GBP/NZD back to the channel support around the 1.8000 handle or lower.

GBP/NZD 1-hour Forex Chart
GBP/NZD 1-hour Forex Chart

Earlier today, the U.K. printed another upside surprise in manufacturing PMI as the actual figure came in at 56.7 versus 56.5. However, this is lower than the earlier 57.3 reading, reflecting a slower pace of industry growth.

However, election-related updates appear to be the bigger drivers of pound price action these days as a narrowing lead by PM May’s Conservative Party against the Labour Party has been bearish for the currency. I’m expecting this market theme to keep uncertainty in play until the actual polls on June 8.

As for the Kiwi, the RBNZ Financial Stability Report acknowledged that housing market risks are subsiding and that conditions are improving overall. To top it off, the latest batch of reports from New Zealand has shown more green than red, particularly when it comes to business activity and inflation.

I haven’t set any actual entry orders yet but I’m looking to short around the 1.8250 minor psychological resistance if reversal candlesticks form. I’ll set a wide stop near the 1.8500 mark and aim for the channel support at 1.8000 for a simple 1:1 play.

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