Whether we are talking about the traditionally risk sensitive pairs or those that are considered safe harbor during rough seas, breakout conditions are extremely high over the next 48 hours. For EURNZD, the threat is particularly high. However, with a clear trade setup in mind and strict timing, the danger could present a quick and lucrative setup.
[B]Why Would EURNZD Hold a Range?[/B]
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· [B][U]Levels to Watch:[/U][/B]
[B]-Range Top: 2.3500 (Highs, Fib Confluence)[/B]
[B]-Range Bottom: 2.2500 (Fib, Double Bottom)[/B]
· There are two separate fundamental concerns when it comes to the stability of EURNZD. On the one hand, we have the [ever-present influence of general risk trends.](http://www.dailyfx.com/story/trading_reports/dynamic_carry_trade_basket/Dollar__Yen_And_Risk_Appetite_1240536010598.html) The kiwi is highly sensitive to the market’s level of optimism; and a sharp reversal from the yen crosses this morning shows such waves are significant. On the other, we have major event risk on the docket. The market is expecting an RBNZ rate cut tomorrow – a likely market mover.
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· From a technical perspective, EURNZD is extremely volatile and favors trends more than it does congestion. However, over the past two weeks, there has been a clear break from the steady directional markets of the past five months. A clear range top around 2.35 is so clearly defined that it could become a target for volatility mavens.
[B][I]Suggested Strategy[/I][/B]
[B][/B]
· [B][U]Short[/U][/B][B]: Half-sized (or smaller) entry orders will be placed at 2.3460, which is near spot.[/B]
· [B][U]Stop[/U][/B][B]: An initial stop of 2.3660 is wide enough for our range, but does not guard against volatility. To secure profit, move the stop on the second lot to breakeven when the first target hits.[/B]
· [B][U]Target[/U][/B][B]: The first objective equals risk (200) at 2.3260 while the second[/B][B] target is set to 2.2860. [/B]
[B]Trading Tip [/B]– Whether we are talking about the traditionally risk sensitive pairs or those that are considered safe harbor during rough seas, breakout conditions are extremely high over the next 48 hours. For EURNZD, the threat is particularly high. However, with a clear trade setup in mind and strict timing, the danger could present a quick and lucrative setup. As a clear disclaimer, the suggested strategy is only for those that are highly risk tolerant. The first thing to do with this pair is to immediately lower notional risk. We have set a tight stop and relatively moderate stop; but this still presents significant room for loss. Therefore, we will look for position that is a quarter of the normal or smaller. Considering the average daily range, a favorable turn should hit the first target and directly relieve any exposure to risk rather quickly. Another optional step that can improve the risk profile would be to wait for entry until the close of today’s daily bar to ensure it will remain below 2.35. From there, we have to be fully attentive to the market’s active leading up to and during tomorrow’s RBNZ rate decision. This event definitely has the authority to force a breakout. Therefore, we will cancel any open orders two hours before the announcement. If we are in an active position before the release and the first target hasn’t been hit (moving up the stop on the second lot), stops will be tightened to just above the session high. Should spot hit 2.36 before entry we will cancel all orders.
[B]Event Risk for Euro Zone and New Zealand[/B]
[B]Euro Zone[/B] – The euro is still in fundamental limbo. Traditional economic concerns and event risk aside for a moment, the market is still looking for signs that policy authorities’ decision to let up on its financial aid will inadvertently tip the economy into a bigger crisis that could take far longer to correct in the end. This will likely be decided through an unforeseen financial collapse or unexpected turn-for-the-worse in economic growth; but in the meantime, traders can concern themselves with the musings of the ECB. There is a clear split in the outlook for policy among central bank members. Some have released comments that suggest a benchmark below one percent is likely and un-conventional methods are still open. On the other hand, we have seen staunch hawks that believe there is little more that the ECB can do to actually turn growth around. The ultimate conclusion will partially be guided by scheduled event risk due this week. Germany holds most of the cards retail sales, retail activity and labor reports all due before the weekend.
[B]New Zealand [/B]– If we were to place all the G8 currencies on a sliding scale of risk sensitivity, the New Zealand dollar would be at the very top. There is a constant threat to this currency through general risk channels thanks to its comparatively high level of interest rates and the state of its markets (which subsequently threatens to lower its yield). Aside from this ill-defined threat, the kiwi has specific troubles of its own. Wednesday at 21:00 GMT, Governor Alan Bollard of the RBNZ will announce his decision on monetary policy. The market is already expecting a 50bp rate cut. However, the reaction to an inline outcome could be very complicated.
[B]Data for April 29 – May 6[/B]
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[B]Data for April 29 – May 6[/B]
[B]Date (GMT)[/B]
[B]European Economic Data[/B]
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[B]Date (GMT)[/B]
[B]Canadian Economic Data[/B]
Apr 29
German Retail PMI (APR)
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Apr 28
Trade Balance (MAR)
Apr 29
Euro Zone Business Climate (APR)
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Apr 28
NBNZ Business Confidence (APR)
Apr 30
German Unemployment Change (APR)
[B][/B]
Apr 29
RBNZ Rate Decision
May 6
Euro Zone Retail Sales (MAR)
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May 6
Employment Change (1Q)
[I]Questions? Comments? You can send them to John at <[email protected]>. [/I]