Long-Term Long on NZD/CAD

Forex Trade Idea: 2014-10-09

The Kiwi has been getting beaten down for months, which makes it an attractive buy on a good looking technical setup in NZD/CAD.

Before you move on, for those who are not familiar with my framework, signals, setups, or acronyms, please visit my discretionary trading framework blog.

NZD/CAD Weekly Forex Chart

NZD/CAD Weekly Forex Chart

NZD/CAD has been on a long-term forex trend higher for years, peaking around .9600 at the beginning of the year. Since then, it’s been a steady ride lower, partly on profit taking after the RBNZ raised interest rates this year and partly on the global weakness starting to creep up in recent weakness, and the massive sell of commodities on global weakness concerns.  The pair has pulled back to an area with a couple of technical arguments for potential support:

  • Broken resistance-turned-support around .8800
  • Fibonacci retracement level
  • Stochastic has correlated to previous market bottoms in the past

One further technical argument is that the market is approaching the 200 moving average (not drawn on the chart), which could serve as dynamic support.  I’ve already decided to go long at market, with a pretty wide stop of two weekly ATR.  My target for this technical trade is the previous swing high, which may take months to hit if the market does go my way.  Here’s what I am doing:

Long NZD/CAD at market (.8785), max stop at .8485, max profit target at .9600

Remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Create your own ideas and don’t follow what I do. Risk Disclosure.

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 2.71:1.  I also get positive carry to pad my profits and help reduce my risk over time.

I do have one concern that with volatility expanding, my stop won’t be wide enough to weather a storm, but if I do get stopped out I won’t be afraid to re-enter long if the story is still valid to do so.  I’ll also look to scale into a bigger position and trail my stop if the market does go my way to maximize my profit.

Of course, anything can happen in the forex markets–especially with a long-term setup like this–so if the story changes I’ll be sure to reassess and adjust quickly if necessary. Stay tuned by following me on Twitter and Facebook!

  • ForExchange

    Hi Pipcrawler,

    as I usually agree with you, I think it is important to write now when I have a different view on the pair. I know you like to trade in the direction where you get carry trade and it makes sense.

    I do not know where the market is heading of course but I see a different story out there. I am looking at the falling dairy prices, the worsening geopolitical news and weakening AUD economy. These news are all bad for NZD. On the other side I do not say Canada is producing too strong results but a strong US economy helps for sure. Comparing all this the big picture does not look so obvious bullish setup as I would wish it to be. If you get out with breakeven then it would be a win because of the carry trade.

    My long-term view might be also bullish, but not yet. I do believe dairy is just too important and it might fall still a bit. Stochastic is oversold but it is not moving out of the zone yet so further fall is in the cards.

    All in all, for a very long-term trade it could turn out good but I would have waited for more price confirmation on the bullish direction or a better price to get in. It can of course happen that you just called the very bottom and it will be a huge trade.

    Good luck to you!


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