AUDUSD and NZDUSD offered 2 great short setups a week ago: both pairs broke below the support lines and fell some 180 and 340 pips. We discussed these setups in our blog here.
Did you manage to catch part of the move and lock in some pips and profit?
Drop a note if you did! We love to hear how many pips are earned with our posts.
NZD & AUD TURN?
In a sudden turn of events the end of the AUD and NZD bearishness could be around the corner. On Thursday the Reserve Bank of New Zealand (RBNZ) decided to keep the current rate at 3.5%.
Although the lack of a rate increase could have been interpreted bearishly, it actually encouraged demand for the Kiwi currency and sent the EURNZD spiraling lower and the NZDUSD bouncing higher.
This change of flow was quickly picked up by the Winners Edge’s Forex Power Indicator. It shows that the NZD towers above the rest (most strength) and that the AUD is placed at a distant 2nd spot. The EURNZD pair especially catches our attention when pairing the strongest and weakest currencies.
The EUR has been in a down trend against the entire Forex market, including the EURNZD. In fact the last couple of trading days the bearish momentum has accelerated to further lows.
What options do Forex traders have? Let’s discuss the various choices.
- REVERSAL SETUPS. Bullish reversal trades will almost certainly be taken too soon. The main reason is the lack of any reversal signals, such as presence of divergence. I am certainly not looking for longs despite the current “low” price level.
- CONTINUATION DOWNSIDE. With such a clear momentum driving price to lower lows and lower highs, Forex traders are best advised to keep searching for setups in the same direction. But price has already fallen a great distance and traders need to avoid chasing the market.
- WAIT FOR PULLBACK. By hunting for a short setup on a pullback, the Forex trader gets the best of two worlds: a high probability short setup at a discounted entry price.
EURNZD TRADE DETAILS
I am expecting the retracement to be quite shallow, which is why using a lower time frame chart like the hourly is sensible. During phases of strong momentum, a typical pullback level tends to be the 38.2% Fibonacci level.
That is why I favor a pending order short entry at 1.4442. The stop loss should go above the 50% Fibonacci level at 1.4510 at the very minimum with a target aimed at the -27.2% Fibonacci level at 1.4181.
Traders, who are able to monitor the charts, can also keep an eye on the price movements and take a market order short once price confirms a turnaround at the 38.2% or 50% Fibonacci via a candle stick pattern.
Obviously price might still push lower before making the correction back up. In that case the Fibonacci retracement level can be moved to the new bottom but the same approach is valid (just with difference price levels).
Do you like the EURNZD short?
Thanks for sharing the post and Happy Hunting!
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