What’s up forex fiends!? This week I’m setting up for a longer-term short play on NZD/CAD ahead of top tier events in the next few weeks.
NZD/CAD Resistance Retest?
August is right around the corner, which means we’ll get some top tier catalysts for both the Kiwi and the Loonie to potentially shake things up in NZD/CAD. The most notable event to watch is the latest monetary policy decision from the Reserve Bank of New Zealand, which could likely give traders another rate cut after holding the rate at 1.50% back in June. Since that event, though, the data has been mixed but arguably net negative, and we just recently saw news that the RBNZ is taking a look at unconventional monetary policy strategies. This makes for pretty good odds that the RBNZ will continue to be dovish and may even deliver another interest rate cut.
We’ve also got the quarterly employment data from New Zealand just a few days before the RBNZ event, and the Canadian employment report just a few days after, both likely to add significant volatility to NZD/CAD pretty soon.
From a price action perspective, I’m looking at the daily chart above of NZD/CAD and can see that the pair has been in a bearish mood since topping out around 0.9200 back in March 2019, but the bulls have made a nice comeback in July. The market is now testing a broken support area around 0.8900, which happens to be the 38% Fib retracement area of the recent swing move lower, and the stochastic indicator is signaling potentially overbought short-term conditions.
With the market retesting a strong area of interest, and my fundamental bias of a potentially dovish RBNZ meeting ahead, I’m looking to short NZD/CAD for a medium to longer-term swing play. But I’m going to be patient with my entry by trying to wait for a retest of the broken support area around 0.8900, and since this could be a longer-term trade, I’ll be using the weekly ATR as my stop. My target is the recent support area that held off the bears in June and July. Here’s what I’m doing:
Short NZD/CAD at 0.8900, max stop at 0.9060, max target at 0.8670 with 1.00%
I’m only risking 1.00% of my account on this trade , and I’ve got a potential max return-on-risk of around 1.43:1. But with the potential for big moves from top tier economic ahead, I may add to this position if it makes sense after the events, or close down quickly to limit any losses.
What do you guys think? Let me know in the comments section below!
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