Good afternoon forex friends! I’m laying out another simple trade idea on a very familiar currency-cross: NZD/CAD. Is the uptrend here to stay?
The last time I traded NZD/CAD, I was on the short side until it broke back above the moving averages and falling highs. And it looks like that may have been the right decision with the pair grinding on higher, hitting as high as .9500 before pulling back today.
Between the Kiwi and the Loonie, I’m fundamentally more bullish on the Kiwi because of the higher interest rate and recent relative strength vs. the other comdolls. I also feel that oil (one of Canada’s main export industries) will continue to feel pressure, which in turn may continue to put pressure on the Loonie.
Now, we are seeing a pullback in Kiwi strength today thanks to a downgrade to New Zealand’s inflation outlook, and it may not end there with the dairy prices report coming up. We’ve also got NZ trade balance and Canadian CPI data which should at the very least, give me volatility to work with.
So to be a little cautious, I’m looking for a pullback to scale into this trend at a more desirable price. On the four hour forex chart above, it looks like the rising moving averages and Fibonacci retracement area is great place to take a nibble and see if buyers hop back in. I’ll use my usual weekly ATR stop to limit my max loss, and my target is pretty open now, but I’ll re-assess at the previous swing high. Here’s what I am doing:
Long half position NZD/CAD at .9325, max stop at .9060, initial target at .9500
Long half position NZD/CAD at .9200, max stop at .9060, initial target at .9500
I’m only risking 1.00% of my account on this one, and with this trade structure, I have a potential reward-to-risk ratio of about 1.18:1. Of course, anything can happen in the forex markets, so if the story changes I’ll be sure to reassess and adjust quickly if necessary. Stay tuned!