Trade Setup for the Day: Long NZD/USD (February 20, 2013)

NZD/USD’s uptrend is still intact as the rising channel on the 4-hour chart seems to be holding. The pair just tested the top of the channel last week when New Zealand released stronger than expected quarterly retail sales data but has since been unable to sustain its rally.

This week, the New Zealand dollar is edging lower against the U.S. dollar as traders are exercising caution ahead of the central bankers’ speeches and the release of various monetary policy meeting minutes throughout the week.

A midweek reversal could be in the works though if the pair finds support around the .8350-.8400 area, which is at the bottom of the rising channel. Stochastic is still pointing down though, suggesting a further move down south. However, there seems to be no catalysts for a breakdown below the channel so it’s reasonable to assume that it could bounce from the next support area.

Going long at the .8350 minor psychological level with a stop loss below .8300 and a profit target at .8500 would yield a 4:1 reward-to-risk ratio. Despite the recent run of weak employment data from New Zealand, the RBNZ is still one of the more  hawkish central banks around as they aren’t looking to ease monetary policy anytime soon.

By Kate Curtis from Trader’s Way