Forex Trade Idea: NZD/CAD
It looks like the resistance around .9200 is breaking on NZD/CAD. Will forex traders see this as a new leg higher on its way to parity?
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The uptrend started way back in May of 2013 after the pair bottomed out around the major psychological level .8000. It’s an understandably strong one as currency traders have been playing the possibility of a the Reserve Bank of New Zealand raising rates, while the trend in Canada’s economic data is weaker than its counter parts (unable to hold unemployment rate below 7.0% and weakening business data). Will this continue?
Opposite of what my friend Jack the Pipper thinks about the Kiwi dollar, I think the idea of a rate hike by the RBNZ will continue to support the Kiwi in the short-term, and that a weakening China won’t be as big a hit to New Zealand as it is to Australia.
The pair has been in consolidation mode so far in 2014, and after finding support around .9000 – .9050, the uptrend seems to be back on track, especially if this .9250 area gives way to the bulls. I think it is after some positive New Zealand data today (better-than-expected Trade Balance data), which is why I went long market. Also, we have Canadian GDP data on Friday, with broad expectations of the number showing the economy shrank last month.
My stop will be the bottom of the range as I’d like to get out and re-assess there, and for this trade, my ultimate profit target is parity. Here’s what I am doing:
Long full position NZD/CAD at market (.9270), stop at .9050, max profit target at 1.0000
I went in with a full 1% risk to my account, with a potential return-on-risk of 3.31:1. This is meant to be a longer-term trade, so if it does go my way, I’ll look for opportunities to add to my position and trail my stop to maximize my reward; I’ll see what happens at .9500 before I consider adding. Of course, if the story changes or price action proves my wrong, I’ll be sure to adjust quickly if necessary. Stay tuned by following me on Twitter and Facebook!
Don’t forget to check out my long-term Long on USD/JPY!