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The fundamental picture is looking a bit brighter for the Canadian dollar these days so I’m considering a long Loonie setup against the Kiwi, which has been pushed down by RBNZ dovishness. Here’s what I’m watching on NZD/CAD.

NZD/CAD Trade Idea

I’m seeing a sketchy head and shoulders formation on the pair’s longer-term chart, and this is a classic reversal signal from an earlier uptrend. Price has a ways to go before testing the neckline around .9250-.9300 but it does look like sellers could keep advancing from here. If so, a break below the key support zone could send the pair down by 500-600 pips, which is roughly the same height as the chart pattern.

NZD/CAD Daily Forex Chart
NZD/CAD Daily Forex Chart

Zooming in to the short-term time frames, I spotted a neat entry opportunity on the 1-hour chart as price just broke below the double top neckline and is pulling back. Applying the Fib tool on the latest swing high and low shows that the 50% level is close to the broken support and the .9500 major psychological mark.

NZD/CAD 1-hour Forex Chart
NZD/CAD 1-hour Forex Chart

Stochastic is already indicating overbought conditions so Kiwi bears could get back into action pretty soon. I’m eyeing an entry around .9475 with a wide stop past the swing high of .9650 and an initial target of 150 pips or the same size as the double top. This should be right around the daily head and shoulders neckline support so I’ll stay on the lookout for a breakdown, which could allow me to adjust my target much lower to around .8800 and trail my stop.

I haven’t set any actual entry orders yet since I plan on waiting for New Zealand’s quarterly retail sales release. Analysts are expecting to see a 1.1% rise in headline consumer spending for Q4 and a 0.9% gain for the core figure, both higher than the previous period’s increases, but the rise in unemployment for the same quarter, weak wage growth, and higher price levels might have dampened spending activity.

There are no other top-tier reports due from Canada for the rest of the week. Its latest release was the manufacturing sales report, which printed a 2.3% increase versus the projected 1.4% rise. With that, crude oil price action could push the Loonie around, along with headlines on trade negotiations between the U.S. and Canada.

Don’t forget to check out our risk disclosure if you’re trading this one, too!



See also: Q4 2016 Trading Performance Review

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