So much for that confluence on EUR/NZD! Rumors of the ECB cutting its inflation outlook weighed heavily on this pair and caused a breakdown. Here’s how my long position played out.
Long EUR/NZD Idea
I was hoping to catch the bullish momentum off a bounce from the channel support visible on the pair’s 4-hour time frame. This lined up with the broken resistance of a longer-term descending channel anyway, so I thought that there were plenty of buy orders around that 1.5800 area.
However, fundamentals took hold of EUR/NZD price action as dovish ECB expectations caused support to give way.
At the same time, Kiwi strength prevailed as New Zealand fundamentals are looking way better than those of other major economies. Heck, the higher-yielding Kiwi even managed to rake in gains against its peers even as risk-off flows were seen lately!
In hindsight, I probably should’ve exited this trade a bit earlier instead of waiting for price to drop all the way down to my stop loss. There were some signs of a breakdown from the rising channel, but I guess my wishful thinking got the best of me.I also had hoped to keep this trade open until the actual ECB announcement, thinking that the central bank would issue a less downbeat statement this time around. After all, medium-tier reports from its top economies have shown strong improvements last week.
But if there’s anything I should keep in mind about policy statements these days, it’s that they’re heavily focused on inflation. Late last week, flash CPI readings from the euro zone didn’t look so hot, so it wouldn’t be a surprise if Draghi grabs the opportunity to remind market watchers that the ECB has a long way to go before tapering.
Here’s what I ended up with:
P/L: -300 pips / -0.50%
I know, I know… It sucks to take the full loss on a trade, and I do hope that I reacted to market themes better instead of keeping my fingers crossed that a bounce will occur at some point. Lesson learned!
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