GBP/NZD Daily Outlook July 11, 2012

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By: DailyForex.com

The GBP/NZD pair is one that I love to trade. This is mainly because I love to trade the Kiwi dollar in general. However, it isn't one I write about often as many traders are nervous about trading this pair. This is mainly because of poor education, as one of the first lessons traders almost always here is to "stick to the majors."

This pair features two major currencies. That's really all you need to know, except for the fact that the spread might be a little bit higher. My broker currently charges five pips for the spread, something that I find very manageable when trading it. However, I don't bring these pairs up very often unless I see something relatively interesting in the charts.

Huge consolidation area


The 1.94 area looks to be rather supportive in this marketplace, and the hammer formed on the Tuesday session after a bounce suggests that we should see continued support. It should also be noticed that the hammer is lying right on the 1.95 area as well. This of course suggests that around number is acting as support. When you zoom out on the charts, you see a massive area that looks like it could be consolidation. In other words, a long-term trade.

When looking to trade like this, suddenly the five pips spread becomes a lot less relevant. I know that there are various areas above that could provide significant resistance, but I am looking at it in the totality of the marketplace. The Kiwi dollar is a much riskier asset than the British pound, and as such this pair actually can rise during economic uncertainty. This may be a bit unintuitive for people who are used to shorting the pound during bad economic situations, but this is more or less a referendum on the Kiwi dollar in these particular situations.

GBPNZD Daily 71112

Zooming out on this chart, you can see that the 2.10 level has been a bit of a double top. The 1.95 level has been supportive, and the fact that we formed a hammer will not have gone unnoticed by many. I can see resistance at the 1.97 level above, perhaps the 2.00 level, and then very little in the way of it in till we reach the 2.10 level. Because of this, I am very interested in going long this pair and will do so on a break of the Tuesday hammers highs. Whether or not this trade works out, you have to love the risk to reward ratio and that's why I bring up this chart. For me, the risk is certainly worth it as it only takes one or two of these a year to build healthy account.

Christopher Lewis has been trading Forex for several years. He writes about Forex for many online publications, including his own site, aptly named The Trader Guy.