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This pair has been trending lower in the past weeks and is back to testing its descending trend line, still trying to decide whether to make or a bounce or a break. Which way do you think it’ll go?

NZD/CAD Trade Idea

A descending trend line connects the pair’s highs since June this year, and this time it lines up with the .9000 major psychological resistance. To top it off, it also coincides with the 38.2% Fibonacci retracement level on the latest swing high and low.

I thought I already missed the pullback since price bounced off the 50% Fib, but it failed to form new lows so the correction is still in play. Stochastic is indicating overbought conditions and looks ready to turn south, which might encourage more Kiwi bears and Loonie bulls to join in.

NZD/CAD 4-hour Forex Chart
NZD/CAD 4-hour Forex Chart

However, squinting my one good eye leads me to see a sketchy inverse head and shoulders pattern that could be indicative of a pending reversal. Am I just seeing things? The pair was unable to form new lows after all, which hints that buyers are eager to get back in the game.

In terms of fundamentals, I’m having second thoughts about riding the Loonie rally at this point because of the cautious remarks from BOC head Poloz. Although he maintained a hiking bias and refrained from jawboning the Loonie, he did mention that monetary policy adjustments will be data-dependent and that there is no pre-determined path for interest rates.

Now this ain’t exactly groundbreaking, but it looks like forex junkies interpreted this to be a less hawkish stance than expected. However, this does not change the fact that Canadian fundamentals are looking more solid than ever and that the positive momentum in crude oil could also lift the positively-correlated currency.

As for the Kiwi, the September RBNZ statement was pretty much a carbon copy of their earlier announcement, but it did contain a few positive comments on the New Zealand economy. For now, though, it looks like political uncertainty is the main theme for NZD price action while rival parties remain deadlocked in forming a coalition government.

I’m not inclined to put any orders ahead of the weekend, knowing that the picture could be completely different if something comes up from North Korea or if New Zealand’s political parties suddenly announce an agreement.

What I’m gonna do is keep a close watch on the .9000 handle to see if an upside break or if a continuation of the selloff is about to take place before hopping in. I’m gonna aim for the swing low if I short or set my sights on the next area of interest at .9400 if I go long. I’ll keep y’all posted!

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