There were signs that the bears were ready to run in NZD/CAD after the bounce, but a series of very recent developments from China and Trump had traders going into risk-on mode, favoring the Kiwi over the Loonie.
Trade Review: Downtrend Pullback in NZD/CAD
No luck on this short play in NZD/CAD that was based on textbook technical arguments for a downtrend continuation and a fundie bias that favored the Loonie over the Kiwi.
And everything was looking good for a bit as I did get my second short entry at .8600, followed by sellers holding the area and even taking the pair back below my first entry and the .8500 major psychological area.
Unfortunately, the market started to shift this week, likely on improving global risk sentiment, which was capped off today with Chinese data that still showed expansionary conditions in both its services and manufacturing sectors (albeit at a slower pace), that sparked a strong push higher in risk assets like the comdolls. In this pair’s case, the Kiwi is considered the risk-on asset between the two given its higher short-term interest rate and sensitivity to Chinese economic developments.
And for one final push higher, this tweet from U.S. President Trump had risk-on traders pushing the buy buttons just a little bit more in the U.S. session:
This, along with recent positive tariff comments from Trump’s top economic advisor Larry Kudlow last night, brings on some short-term confidence of a lower probability for an all out trade war, sparking further risk-on moves in the global markets, and giving Kiwi bulls more reason to keep buying.
And it probably didn’t help that oil bears have been on a tear taking down the price of crude throughout October and into the new month, likely adding some pressure to the Canadian dollar.
The moves today were enough to break NZD/CAD above the lower ‘highs’ pattern to invalidate the trade and trigger my stop at .8715 to close my positions
Average Short Price: .9505
Close Price: .9470
Total: -153 pips/avg; -0.50% loss on 0.50% risk
Looking back, I don’t have any issues with this trade that I see: I’m still fundamentally biased in favor of the Loonie over the Kiwi, and price action was in a downtrend. What more do you need to take the short?
But as always, the markets can hit us with catalysts at anytime, both positive and negative for our positions, and this time it was negative for me and positive for NZD/CAD bulls.
But maybe I’m missing something that you’re seeing and if you want to share you thoughts, don’t be afraid to let me know in the comments section below!
That’s it for now and I’m still in watch mode on my AUD/JPY & EUR/JPY ideas, but with the recent shift to risk-on sentiment, I may make an adjustment to those orders soon. Stay tuned for that and as always, good luck and good trading!
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