How (NOT) To Do Forex Hedging - Week 18 | Technical Analysis by Jasper Lawler

Technical Analysis: Week 18, 2025

(GBP/USD | NZD/USD | EUR/JPY)

Weekly Thoughts

Hedging is one of the most misunderstood methods of managing risk in forex. Done right, it can reduce risk while preserving upside potential. Done wrong, it complicates decisions and locks in losses.

Lets start with how not to hedge.

A common but flawed approach is using hedging as a substitute for a stop loss:

You open a long position in EUR/USD.

It moves against you.

You cant bear more loss.

So you open a short position in the same pair.

This seems logical—if EUR/USD drops, gains from the short position offset losses in the long. But in reality, you're not reducing risk—you‘re freezing your account at a loss. This strategy locks in a floating loss and leads to indecision. Since your equity won't improve unless you close a leg, traders often hold both positions indefinitely, racking up swap fees and missing new opportunities. This isn’t risk management—its emotion-driven avoidance.

Instead, hedging works best when its strategic and pre-planned, often using correlated pairs or multiple timeframes.

This weeks setups give us a great example of strategic hedging:

Short GBP/USD

Long NZD/USD

(Skipped) Short USD/CAD

We chose GBP/USD and NZD/USD, excluding USD/CAD, because these two positions hedge USD exposure. In both, the US dollar is the counter currency. So if USD strengthens or weakens sharply, it's unlikely both trades will lose. Youre balancing exposure—not eliminating it—but doing so with a clear plan and purpose.

This hedge is driven by logic, not fear. Youre trading the pound and kiwi on their merits while neutralising some dollar risk in an uncertain week.

Setups & Signals

Each week, we scan hundreds of charts and bring you three of our favourite trade ideas.

GBP/USD

Setup:

The weekly chart shows a possible double top after an extended rally. Despite a bullish bias, price has stalled near key resistance, forming two bearish Shooting Star candles. The 30-week MA is flat, indicating momentum slowdown.

Signal:

While the daily chart remains in an uptrend (increasing risk of false signals), RSI bearish divergence and a break of the short-term uptrend line point to downside potential. Price may target the 1.30 round number.

NZD/USD

Setup:

A strong bounce from the lows has completed a double bottom within a longer wedge pattern. The previous downtrend is broken, though a full uptrend hasn‘t formed yet. It’s a solid candidate to hedge USD exposure from the GBP/USD short.

Signal:

RSI remains bullish, and a possible bull flag below the 0.60 level supports continuation higher. The next key target is the descending trendline on the weekly chart.

EUR/JPY

Setup:

Weve been tracking a possible long-term head and shoulders reversal—but we must stay adaptable. The pair has now broken its downtrend and is holding above the 30-week MA, signalling a possible shift to bullish momentum.

Signal:

A breakout above the 163.5–164.2 zone opens the door to a move toward the 166 peak from November. The rising neckline connecting the ‘shoulders’ also serves as a target area.

That‘s our view—what’s yours？

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