Got another simple technical forex setup to play continued oil weakness and collect a little positive carry. Is the pullback in NZD/CAD an opportunity to go long?
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With oil continuing its crash, I looked for a new Loonie short opportunity and found this strong rally in NZD/CAD. With the world going into risk aversion mode lately because of Saudi Arabia-Iran tensions and North Korea’s claim of a hydrogen bomb test, it makes sense that the Kiwi is taking the bigger hit when it comes to this pair. When it comes to geopolitical influences on the currency market, I tend to see short-term impact, which has me staying bullish on the pair because of recent strength. I also like the small positive interest carry going long on this pair as well.
So, I’ve decided to take a couple of small long positions on this pair, first at market (since stochastic is already coming out of oversold area) and the second on a continued pullback into a potential support area marked by:
- rising 200 moving average
- Fibonacci retracement area of .8600 – .9600 swing move
- Previously broken resistance, now potentially support around .9000
My max stop is below the that previous resistance area and Fibs, with my ultimate target at parity, but I’ll do a re-assessment at the recent swing high to see if the stories change. Here’s what I’m doing:
Long NZD/CAD at market (.9350), max stop at .8850, initial target at .9600
Long NZD/CAD at .9000, max stop at .8850, initial target at .9600
I’m only risking 0.50% of my account on this one, and with this trade structure, I have a potential reward-to-risk ratio of about 1.91:1 at the initial target, but I hope to hold this and go for my ultimate parity target if the story makes sense. 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!
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