This pair is showing another short opportunity with this trend line pullback and bearish divergence play. Do fundamentals still line up for a short position?
Short NZD/CAD Idea
A few weeks back, I considered hopping in this double top breakdown on NZD/CAD. Price still has plenty of room to head south before hitting my profit target then, so I’m pretty excited about this chance to catch a pullback instead.
The pair is currently trading below a descending trend line and could be due for a test of the resistance at the .8850 minor psychological mark, which is near the 50% Fib. A larger correction could make it until the 61.8% level closer to a former support turned resistance area.
However, I’m already seeing a bearish divergence as stochastic made higher highs while price had lower highs since May 8. The oscillator has already started to move down to signal that sellers are back in the game, which suggests that the 38.2% level might be enough to keep gains in check.
I’m not too keen about hopping in at market for now since the BOC statement is still coming up. In their previous announcement, the Canadian central bank joined the rest of its peers in shifting to a more cautious stance, so reiterating this bias could mean more downside for the Loonie.
I’m a bit wary about falling crude oil prices as well, as this could also drag the Canadian dollar down. Although OPEC cuts and Middle East tensions keep a lid on global supply, the latest batch of U.S. inventory gains spurred a sharp decline, so I’ll be on the lookout for these reports this week, too.
Still, I’m more bearish on the Kiwi since the RBNZ already cut rates recently and might be looking to ease again later in the year. The RBNZ Financial Stability Report and the speech by Governor Orr tomorrow should contain more clues.
With that, I’m sitting tight while keeping my eyes locked on the .8850-.8875 area for a possible short entry. If I’m able to hop in, I’ll set my stop at .8925 and aim for new lows.
Care to share your thoughts on this setup?
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