Trade Setup for the Day: Short NZD/USD (February 28, 2013)

NZD/USD is still on a strong downtrend, as seen from the formation of a falling trend line on the 1-hour time frame. The pair has also just broken below the .8300 major psychological support earlier this week, confirming the strong bearish bias on this pair.

After consolidating around the .8250 minor psychological level at the start of the week, the pair is pulling up for a quick retracement before possibly resuming its downtrend. It just rallied past the 38.2% Fib level but appears to be finding resistance at the 50% Fibonacci retracement level, which is in line with a former support area.

However, the trend line is still a few pips higher than this resistance zone while stochastic hasn’t crossed down from the overbought area yet. This suggests that the pair has enough room to climb before actually selling off. The 61.8% Fib seems to be a better entry point in this case.

Shorting around .8350 with a stop above the .8400 major psychological level and a target of .8200 would yield a 2:1 reward-to-risk ratio.

By Kate Curtis from Trader’s Way