New Zealand Dollar Trading Strategy: Game of Stops

NZD Technical Strategy

The Reserve Bank of New Zealand (RBNZ) affirmed more rate cuts may be seen at the future but did not commit to a time frame. Several months ago we were under the impression a bearish flag was painted in NZDUSD but the price continued to pop higher. Nevertheless we have noticed NZD is bearish on multiple pairs and crosses.

NZDCAD Monthly Chart

Please click on the chart to enlarge:

NZDCAD Monthly Chart 31/08/16

NZDCAD Monthly Chart 31/08/16

NZDUSD Monthly Chart

Please click on the chart to enlarge:

NZDUSD Monthly Chart 31/08/16

NZDUSD Monthly Chart 31/08/16

NZDJPY Weekly Chart

Please click on the chart to enlarge:

NZDJPY Monthly Chart 31/08/16

NZDJPY Weekly  Chart 31/08/16

EURNZD Monthly Chart

Please click on the chart to enlarge:

EURNZD Monthly Chart 31/08/16

EURNZD Monthly Chart 31/08/16

AUDNZD Monthly Chart

Please click on the chart to enlarge:

AUDNZD Monthly Chart 31/08/16

AUDNZD Monthly Chart 31/08/16

GBPNZD is not listed as the required stop exceeds +600 pips, which we do not find reasonable for establishing a long trade. In addition, we lack the ability to exercise an intraday stop.

Based on NZDJPY weekly chart, if the price is unable to break outside the channel by the weekly close we may assume NZD weakness is due within the next 14 days. As these are monthly charts the weakness is unlikely to be temporary. We must admit we cannot determine what may trigger such weakness as the possibilities are endless. Aggressive rate cuts by the RBNZ is one of the possibilities but we are uncertain it is sufficient for such extensive weakness. If our analysis is inline with the market once the weakness begins we will be able to conclude the trigger. We are unlikely to hold onto the trade for several months. We will play on dips as we have done in other currencies.

The difficult part of the signal is the protective stop loss order. Monthly entries, by nature demand larger stops than shorter time frames such as a daily chart. AUDNZD provides the most attractive entry. We have no intention of shorting NZDCAD, NZDJPY, NZDCHF and NZDUSD despite the charts.

NZDUSD will leave us exposed to the Non-Farm Payrolls, due to the BOJ we are avoiding NZDJPY, we still maintain the floor may be re-applied to EURCHF while NZDCAD will leave us exposed to the upcoming non-OPEC meeting.

This will be a difficult decision as we are unlikely to initiate a long trade in Euro Kiwi and Aussie Kiwi. Despite AUDNZD entry we prefer EURNZD. The New Zealand Dollar could be sold as a response to a crisis, possibly linked to China. In such a scenario both AUD and NZD may suffer heavy losses. What makes this decision more complex is that the RBA is unlikely to take any action in its monetary policy while the European Central Bank (ECB) could have a greater impact on the Euro. We are not expecting the ECB to take any action but the tone of the statement and press conference may trigger high volatility in EUR pairs and crosses. In EURNZD we are able to implement an intraday stop but must note there are greater risks when such stops are taken.

We are currently leaning towards EURNZD, we will decide after 21:00 GMT.

AUDNZD Trade Alert

Please click on the chart to enlarge:

AUDNZD Monthly Chart II 31/08/16

AUDNZD Monthly Chart II 31/08/16

AUDNZD long at market price (1.0373)
Take profit: 1.0900
Protective stop: 1.0200
Risk Ratio (RR): 1 : 3 (approx.)
Estimated duration: 60 days

Note: This is a monthly entry. The potential drawdown is a re-test of the support (in pink). We will consider opting for EURNZD if a better price is provided after the Non-Farm Payrolls.

EURNZD Trade Alert

Please click on the chart to enlarge:

EURNZD Monthly Chart 02/09/16

EURNZD Monthly Chart 02/09/16

EURNZD long at market price (1.5321)
Take profit: 1.5970
Protective stop: 1.5048
Risk Ratio (RR): 1 : 2.6 (approx.)
Estimated duration: 35 days

Note: This is a monthly entry, we tried timing it via an intraday entry. As the price could re-test 1.5138 the stop is layered below although we are not expecting such a re-test to take place.

07/09/16 UPDATE: The initial push lower was in AUDNZD, which spilled over to other NZD pairs and crosses. EURNZD is trading below 1.5138 at the time of this writing. We are preparing for the possibility the stop may be triggered by the market.

We are not widening the stop. EURNZD is trading at 1.5073 at the time of this writing.

07/09/16 UPDATE II: EURNZD triggered the protective stop loss order, ending the trade with a loss. We are reducing our exposure to AUDNZD. AUDNZD is trading at 1.0265 at the time of this writing, we are closing 30% of the long trade at market price.

GBPUSD Trade Alert

We have emailed our subscribers in advance that we may issue the trade alert prior to the daily close.

Please click on the chart to enlarge:

GBPUSD Daily Chart 13/09/16

GBPUSD Daily Chart 13/09/16

The prior resistance level (in blue) has been tested by the market in today’s session. We were under the impression GBPUSD will resume its weakness in today’s session in to target the prior resistance, now acting as key support for GBPUSD. The entry was timed via the hourly chart to limit the potential drawdown, which is why we did not wait for the daily close.

GBPUSD long at market price (1.3191)
Take profit: 1.3465
Protective stop: 1.3111
Risk Ratio (RR): 1 : 3 (approx.)
Estimated duration: 7 days

Please note the trade alert was issued before the being posted on the website, which is extremely rare.

14/09/16 UPDATE: GBPUSD is trading at 1.3236 at the time of this writing. We are closing 25% of the long trade at market price. The protective stop cannot be shifted to the entry despite the current distance due to the bearish spike that took place in today’s session.

15/09/16 UPDATE: GBPUSD is trading at 1.3237 at the time of this writing. As this is a daily entry as opposed to a weekly chart we must act.

Please click on the chart to enlarge:

GBPUSD Daily Chart 15/09/16

GBPUSD Daily Chart 15/09/16

We are closing 25% of the long trade at market price and shift the protective stop to 1.3169.

16/09/16 UPDATE: GBPUSD dipped lower, driven by selling in GBPJPY. The protective stop was triggered, ending the trade with a minor profit due to the partials’ realization. We are labeling the outcome of GBPUSD as ‘breakeven’ in the trades performance in light of the minor profit.

22/09/16 UPDATE: AUDNZD is trading at 1.0454 at the time of this writing. By the book the stop should only be shifted at the end of the month. However, based on our analysis AUDNZD is unlikely to reach our entry price following a retracement to today’s gains.

Please click on the chart to enlarge:

AUDNZD Monthly Chart 22/09/16

AUDNZD Monthly Chart 22/09/16

We are closing 30% of the long trade at market price and shift the protective stop to the entry. Should AUDNZD trade near our entry (1.0373) towards the end of Friday’s session we may modify the stop to withstand the gap that may or may not be seen on Sunday night.

23/09/16 UPDATE: AUDNZD is trading at 1.0522 at the time of this writing, we are closing the trade at market price. We will re-evaluate the market at the weekly close. As we know what triggered GBP selling we will consider re-entering.

All of the above trade updates on this page were issued via email to our members.

Last Updated on October 8, 2018