Getting back into the swing of things with this sweet swing setup on NZD/CAD. Will sellers jump back in on the recent bounce higher?
Downtrend Pullback in NZD/CAD
The Canadian dollar has run through a rough patch in the past week or so thanks to global risk-off sentiment and weaker oil prices, but I think a rebound is ahead with some notable top tier catalysts from Canada coming soon.
Most noteworthy on the economic calendar is the upcoming Bank of Canada monetary policy meeting, which it is likely we will see positive rhetoric from the BOC based on positive top tier data recently from Canada like the better-than-expected employment data, monthly GDP reads, and the positive sentiment from the latest Bank of Canada’s business survey.
All put together, I think traders will start to price in once again that rate hikes are coming from the BOC, something that BOC Governer Poloz mentioned himself is warranted to achieve their inflation targets.
As for the Kiwi, it has been a choppy ride for the New Zealand dollar over the last couple of months due influences from global risk sentiment, mixed economic data from New Zealand, and the RBNZ maintaining a neutral policy stance at its last monetary policy meeting. Overall, though, it’s been a net loser, especially against the Loonie, which is one of the reasons I’m focusing on buying the Canadian dollar against it. The other reason I’m choosing to buy Loonies over Kiwis is because of the relatively light calendar for New Zealand for the rest of October, reducing the event risk for what really is a Loonie focused trade.
Finally, I like the technical setup on NZD/CAD for a potential short position. On the four hour chart above, we can see the pair has bounce higher after making lows around .8320, now trading above the major psychological level of .8500. This area could draw in potential sellers as it was a previously strong support level back in September and it is in the Fibonacci retracement area of the latest swing move from .8700 to .8300. We can also see divergence between price action and the stochastic indicator, a bearish pattern signalling a potential reversal ahead.
Based on my argument above for a potential Loonie rally ahead, I’m gonna take a short position, but with a rally in the pair still in the works, I’m going to be conservative with my entry. I’m initially going in at market with only 0.25% account risk and placing another nibbler higher with the same risk, and a full position stop one weekly ATR from my average price. Here’s what I’m doing
Short quarter position NZD/CAD at market (.8524), max stop at .8715, max target at .8300
Short quarter position NZD/CAD at .8600, max stop at .8715, max target at .8300
I’ll be risking only 0.50% of my account if both positions go live, and if both positions are triggered, my potential return-on-risk is about 1.74:1 . My plan is to hold onto this trade until the beginning of November where we’ll get New Zealand’s quarter employment data and the latest RBNZ monetary policy meeting.
Of course, with other major themes driving markets and fast developments happening in geopolitical news, I will not hesitate to adjust quickly (i.e., cancel orders, close trade, reverse trade) depending on what happens and how the markets react.
Stay tuned and as always, remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Create your own ideas and don’t simply follow what I do.
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