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With a big Fed event coming soon, I’m looking for a swing setup in the Greenback, this time against the Kiwi with both the fundies & price action looking good.

Sellers to Return to NZD/USD?

NZD/USD Daily
NZD/USD Daily

Fundamentally, the U.S. continues to see strong data in both leading indicators (like the latest ISM PMI read for May) and current indicators, most recently the positive U.S. CPI readings released just today.  So, it’s highly likely we’ll hawkish moves from the Fed this week, which is already expected by the market, and why I’d like to buy some Greenbacks if it pulls back this week.

In terms of the Kiwi dollar, I’m relatively bearish for now as the expectations for monetary policy tightening from the RBNZ remains almost non-existent with inflation readings coming in at its slowest pace in years. And since we won’t get another read for a couple more months, it’s likely this sentiment won’t change for the Kiwi.

Risk sentiment is also a factor when trading the Kiwi (especially when there’s an absence of New Zealand catalysts) , and with geopolitical risks rising–most notably global trade worries and Italian bonds–odds are that risk sentiment could flip back to the downside, favoring safe havens like the yen and the Greenback.

 

In terms of price action,  NZD/USD halted its April and May drop around .6850 before bouncing to the current trading area between .7000 – .7050. This is a Fibonacci retracement area and it looks like some sellers are biting here, but I’m not going to bite yet until after the FOMC meeting tomorrow, and if I see a retest of the 50% Fib area, which happen if we see a “buy-the-rumor, sell-the-news” situation from the Fed meeting.

If I do get in my stop will be roughly the weekly ATR, and my target will be 2017 low for a potential 2.5:1 return-on risk. Here’s what I’m doing:

Short half position NZD/USD at .7100, max stop loss at .7220, max target at .6800

I’ll be risking only 0.5% of my account on this position and as usual, I’ll look to maximize the trade by keeping the trade open and adding to my position/roll stop down if the .6800 area fails to draw in buying support and the market themes/economic data continues to support this downtrend.

Stay tuned 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.

This content is strictly for informational purposes only and does not constitute as investment advice. Trading any financial market involves risk. Please read our Risk Disclosure to make sure you understand the risks involved.