Taking a shot on recent broad Kiwi strength through NZD/CAD with it’s steady grind higher. Will more forex buyers hop in after a little bit of pullback?
The New Zealand dollar has seen some decent gains across the board since the Reserve Bank of New Zealand cut the Official Cash Rate to 3.00% last week, likely on profit taking after a big drop in value since the beginning of 2015. While the economic data still looks gloomy, I think there’s still room for a bounce in the Kiwi after this year’s move.
I’ve paired this sentiment with the Canadian dollar, which has seen its own share of losses as of late thanks to the Bank of Canada making it’s own hair cuts to interest rates, as well as a weakening oil market.
Basically both are not great situations, but I think the Loonie could be in for further declines sooner than the Kiwi, especially with the Canadian monthly GDP coming this week, which has seen negative surprises more often than not this year.
Technically, the pair isn’t quite in oversold conditions just yet so I want to wait for a pullback. But after having missed so many profitable trades on retracements that never happened, I’m going to scale into two small positions near current market prices and just below that broken resistance area. The latter could turn into support if retested, and I think my trade will be invalidated if the major psychological level below is broken. Here’s what I’m doing:
Long quarter position NZD/CAD at .8650, stop at .8450, profit target at .8800
Long quarter position NZD/CAD at .8550, stop at .8450, profit target at .8800
I’m only risking 0.50% of my account on this one, and with this trade structure, I have a potential reward-to-risk ratio of about 1.62:1. 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!