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With cautious RBNZ comments expected and NZD/USD sitting right on the daily descending channel resistance, I’ve decided to short at market to catch a potential selloff.

Short NZD/USD Idea

The Kiwi has been soaring nearly non-stop against its peers for the past few weeks now, and it seems to be hitting a strong ceiling. Price is currently testing the resistance around .7200 at the very top of its falling channel on the daily time frame.

If the RBNZ does sound less upbeat than expected, this pair could drop back to the bottom of the channel near the .6800 mark or at least halfway through until the .7000 major psychological level.

I’ve got my stop past the channel resistance and the pair’s top WATR for the week, which should give me room to cut losses if the .7300 handle breaks. I’m aiming for the channel support as my ultimate PT but I’ll be ready to trail my stop once price tests the mid-channel area of interest.

NZD/USD Daily Forex Chart
NZD/USD Daily Forex Chart

I already hopped in a short position at market since I’m seeing a few reversal candlesticks and stochastic is starting to turn lower from the overbought area. I’m also seeing a bit of bearish divergence from the oscillator’s higher highs back in January and NZD/USD’s lower highs then.

As Forex Gump mentioned in his preview, hawkish expectations are running high these days due to the switch in tone by a couple of central banks last week. However, economic reports have printed mixed signals from New Zealand lately so there’s a good chance that the RBNZ could maintain their neutral stance.

Also, the Kiwi is trading at much higher levels than it was in May and the TWI is way past their 76.0 forecast for June. This means that there could be a few jawboning remarks here and there, reminding traders that an overvalued currency is putting downside pressure on inflation and trade.

Meanwhile, the U.S. dollar could stay supported if risk aversion returns to the global markets on falling commodity prices and Brexit-related uncertainties. The Trump administration has also been attempting to put focus back on fiscal reform, which could also shore up U.S. assets.

Here’s what I’ve got:

Short NZD/USD at market (.7225), stop loss at .7425, profit target at .6825. I’ve risked 0.5% of my account on this setup for a potential 2:1 trade.

I’ve still got my long USD/CAD position open and chalking up some gains, so I’m a bit worried since these two trades are correlated. Think I should still keep both open?

Cheers,

Happy

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