It took a while, but I think the recent pullback higher in NZD/CAD may be coming to an end. Is the longer-term forex trend ready to resume?
Trends don’t get more textbook than this daily chart on NZD/CAD. The market been printing higher numbers since finding a bottom just above .8600 back in October, a move likely supported by the oil market’s big drop pulling down the Loonie and the relatively big interest rate that the Kiwi pays over the other major currencies. And now we’re seeing the pullback from recent resistance at .9600 finding support, and potentially reversing with the stochastic indicating oversold conditions and the market failing to break below .9350.
Today, the oil market seems to have stabilized, but the Kiwi still has its positive carry power, and with China making moves like the RRR cut this past weekend, trading partners like New Zealand could benefit. Fundamentally, I think there’s support for the trend higher, especially if the Reserve Bank of New Zealand (RBNZ) continues to hold off on cutting rates like it has been while everyone else has been cutting in the last few months.
So for this pair, I look to get into a longer-term position, with a wide stop (more than the weekly ATR), and I’m ultimately I’m going for parity, but will make that decision once it gets to previous resistance. Here’s what I’m doing.
Long full position NZD/CAD at .9400, stop at .9100, max target at 1.0000
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 2:1. If I’m in and the market sees .9600, I’ll do a re-assessment to see if scaling in to maximize my reward would be appropriate. 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!
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