NZD/USD Simple Bearish Correction

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I’m counting on risk aversion to stay in the markets while coronavirus fears are in play, and this pullback could offer a good entry point on NZD/USD.

Short NZD/USD Idea

This pair has formed lower highs that can be connected by a descending trend line since the start of the year. Price looks ready for a test of this falling resistance level that lines up with the Fib retracement levels.

In particular, the 50% level coincides with the trend line around .6340, and this might be enough to keep gains in check since stochastic is already starting to head south. If so, NZD/USD could slip back to the lows near the .6200 handle or lower.

NZD/USD 4-hour Forex Chart
NZD/USD 4-hour Forex Chart

Severely downbeat data from China earlier today could be enough to keep risk-taking in check, as the Caixin services PMI fell from 51.8 to 26.5 in February. Prior to this, the manufacturing PMI dropped from 51.1 to 40.3 to reflect the impact of the coronavirus outbreak on the sector.

This pair popped higher mostly due to the surprise 0.50% FOMC rate cut that pulled the Greenback lower across the board. However, the dollar could soon regain its safe-haven demand if markets continue to focus on the increase in number of coronavirus cases outside of mainland China.

Of course I’m also keen on waiting for the ADP non-farm employment release later today, along with the ISM non-manufacturing PMI’s jobs component, to gauge if Friday’s U.S. NFP might meet or beat expectations.

Stronger than expected ADP data could convince me to hop in a short position at .6340, with a stop of 80 pips or roughly the average daily NZD/USD volatility. I’ll aim for the swing low at .6200 for close to a 2:1 return-on-risk on this setup.

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What do you guys think?

Happy

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