Forex Trade Idea: NZD/CAD Short

I’ve been watching NZD/CAD since it failed to break the .9500 higher, waiting for deep pullbacks to jump in the new trend lower. No luck so far, but I think I’ll dip my toes in this week with a shallow pullback.

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NZD/CAD 4 Hour Forex Chart

NZD/CAD 4 Hour Forex Chart

The selloff in Kiwi has been broad and strong, and while I may be a little late to the party, I think with the possibility of more cuts from the RBNZ (and the uncertainty from the Greek debt default and weakness in China) could continue to put pressure on risk assets and the Kiwi.

I chose the Loonie as the counter currency because of recent positive data from Canada, it’s close ties with an improving U.S. economy, and a decent interest rate to stave off the negative carry from selling Kiwi.  Plus, we’ve got a steady stream of Canadian data this week on the forex calendar that should provide a nice boost of volatility to facilitate a pullback.

So, I’m putting up orders on a slight pullback to the potential resistance area highlighted on the chart that includes previous levels of interest, a falling trendline, and the falling moving averages.  My stop will be a wide one, over the weekly ATR of 200 pips, and my initial target will be the next major support area, but ultimately I’d like to go for the major psychological round number of .8000.  Here’s what I’m doing:

Short half position NZD/CAD at .8500, max stop at .8800, max target at .8000
Short half position NZD/CAD at .8600, max stop at .8800, max target at .8000

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 2.2:1 going for the .8000 major psychological level.

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 by following me on Twitter and Facebook!