EUR/NZD Price Analysis: If at first you don't succeed...


  • EUR/NZD bulls come back to the table at a discount.
  • Weekly M-formation pulling in the bids from the daily support structure. 

Further to the prior analysisEUR/NZD Price Analysis: Bulls seeking run to daily resistance, where the cross has been carving out a bullish pattern on both the weekly and daily time frames, the following illustrates a further attempt to long the pair.

Firstly, if you are going to attempt to trade in the same direction as the last failed attempt, it is important that note that a particular trading strategy's rules must be met and so-called 'revenge trading' is NOT advised. 

In the following case, all the rules for entry have been met and the price is back into a bullish technical environment according to 4-hour MACD.

For a recap of the prior analysis, it was illustrated that the weekly chart had left an extended M-formation for which at least a 38.2% retracement can be expected.

There are various target options on the upside, but for this example, we will stick with the 38.2% Fib target which has a confluence of the -0.272% Fibonacci retracement of the daily correction.

In the prior analysis, the entry was too premature and the appropriate risk management should have been applied to one's strategy's rules.

However, despite the 15th Dec's liquidity hunt to the downside, the environment has turned bullish again and opened a secondary opportunity to take part in a higher probability set-up for an even larger risk to reward of 1:4. 

First and foremost, the daily chart offers the same impulse scenario:

Meanwhile, purely from a positioning perspective, NZD displays an asymmetric net-long positioning (according to CFTC data). It was the lowest percentage gain in net positions at +0.8% for the week ending 8 December

However, it has added a net positioning change for the year of +28% with the latest positioning at +17%, the highest of the dollar bloc, by some margin compared to the Aussie which is at just +6%. 

Speculators have continued to add bearish bets on the dollar, mostly due to optimism about the global recovery as vaccines are rolled out in major economies. 

USD net shorts can still increase before aggregate positioning reaches the -18% lows seen in late September and revamped hopes over US fiscal stimulus package were contributing to lift market sentiment in recent weeks as well. 

The combination of this information offers a bullish environment for spot EUR/NZD as the expectations are for additional short dollars, supporting the euro higher, and trimming on the NZD speculative positions. 

Meanwhile, and sticking to the technical analysis, from a 4-hour entry point, the set up is as follows and can be administered 'at market'. 

4-hour chart

Update: Stop-loss position moved to 1:3 R/R

Seems like a very cruel market out there, as there has been a secondary liquidity hunt so the stop loss has been moved to out of range below secondary structure:

However, proper risk management rules would argue that because of the double top and velocity of the downside spike, there is every chance that conditions will now turn bearish. 

The price action should be monitored at the close of the 4-hour candle for bearish technicals. If, for instance, MACD turns negative, the trader should contemplate moving the target to breakeven. 

From that point, the market can be analysed again for a bullish setup. Or, simply move away from what is a sideways chop of a market. 

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