NZD/CAD broke above a tight consolidation range at the end of June. Will potential catalysts from Canada ahead pull the market back for a retest of the broken resistance area and draw in buyers?
Consolidation Break Retest on NZD/CAD?
On the four-hour chart above of NZD/CAD, we can see that the pair broke out of a tight consolidation phase, less than a 100 pip range through out June. The Kiwi has been a relative out performer through the COVID pandemic, likely on the idea that the economies that have done well against the pandemic, like New Zealand, are going to bounce back faster going forward.
And with economies slowly opening up in recent weeks, global risk sentiment has continued to move positive, supporting the Kiwi over most of the majors even more.
So, I’m bullish on the Kiwi relative to most of the majors, and I’m looking to play that against the Canadian dollar, which has been an under performer against the other risk currencies since the March pandemic peak.
It looks like the Canadian economy has been hit pretty hard (Canada GDP plunges a record -11.6% in April) and the big fall in oil prices in April were likely a drag to the Canadian dollar’s performance. And even though we are seeing signs of recovery (Canada’s Ivey PMI shows purchasing activity expanding for first time in four months), it’s likely Canada will remain behind in its recovery vs. New Zealand given the large gap in cases per million between the two countries.
Looking forward, volatility is likely to rise for the pair with the upcoming Canadian jobs update (Jul. 10 at 12:30 pm GMT) and the latest monetary policy statement from the Bank of Canada (Jul. 15 at 2:00 pm GMT), so I think we could see some action soon. But with expectations of a big rebound in Canadian jobs this Friday (a higher probability scenario given the positive Ivey PMI numbers today), I’d like to wait for that number and the reaction first before entering orders to buy on the pair.
So, no trade orders for now as I wait to see how the data and market sentiment plays out, but if I do take action, I’ll be sure to post an update.
Stay tuned for that 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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