Trade Idea: NZD/CAD Trend Line Break

Now that the RBNZ seems to be keeping the door open for interest rate cuts, I’m switching to a short Kiwi bias with this NZD/CAD setup. Policymakers plan on giving an updated economic assessment sometime this week and also proposed tighter lending requirements for the property market so forex junkies can’t help but buzzing about a shift to a dovish bias.

As Happy Pip pointed out last week, NZD/CAD has encountered strong resistance at the .9550 minor psychological mark, which is the top of its long-term range. The pair has shown bearish momentum since then, setting its sights on the range support from here.

NZD/CAD Daily Forex Chart

NZD/CAD Daily Forex Chart

When I zoomed in to the pair’s 1-hour time frame, I noticed that NZD/CAD already broke below a rising trend line, confirming that sellers are taking control. I’ve entered a small position at market and I’m ready to short again on a pullback to the broken trend line.

NZD/CAD 1-hour Forex Chart

NZD/CAD 1-hour Forex Chart

For now, rate cut expectations could keep weighing on the Kiwi, especially since the quarterly CPI missed forecasts and the latest GDT auction showed that dairy prices stayed flat. However, oil prices have also been dropping these days, possibly dragging the Loonie lower and causing a pullback to the .9400 area.

Canada also has its CPI and retail sales figures up for release towards the end of the week so I’ll be ready to make adjustments to my trade, if necessary, on Friday’s U.S. session. Analysts are expecting to see weaker inflation and consumer spending figures compared to the previous month’s readings so the Loonie might slide then.

But before all that, I’ll be keeping close tabs on the RBNZ’s economic update on July 21. Expectations are running high for downbeat comments and probably a bit of Kiwi jawboning so the chance for disappointment could also be just as high.

Here’s what I have so far:

Shorted NZD/CAD at market (.9125), stop loss at .9625, profit target at .8625. This initial trade structure should give me a 1:1 return-on-risk, but I’m also open to adding on a pullback and ready to close early so make sure you’re following me on Twitter for instant trade updates!

As always, don’t risk more than 1% of your account on a single trade and make sure you read our risk disclosure if you’re thinking of taking the same setups.

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