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If there’s one thing I know about Loonie pairs, it’s that they have a pretty strong tendency to stay in ranges. But will NZD/CAD attempt to break out this time?

NZD/CAD Trade Setup

On the pair’s daily time frame, it can be seen that NZD/CAD is already sitting right on the floor around the .9250-.9300 levels. A bounce could take it back up to the range resistance just past .9700 or at least until the middle of the range.

At the same time, I’m seeing a bit of bullish divergence as stochastic made lower lows while price had higher lows. Reversal candlesticks are also forming at the support area, indicating some hesitation among Kiwi bears, but I’d rather wait for more confirmation before hopping in a long position.

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

Fundamentals, however, seem to be painting a different picture for this pair. For one, New Zealand just printed a flat quarterly CPI reading for Q2 that might douse RBNZ rate hike expectations in the coming months. On the other hand, the BOC just increased interest rates by 0.25% in their latest statement and signaled scope for more tightening.

In terms of market sentiment, Kiwi and Loonie bulls had been charging in the past few weeks but hawkish BOC sentiment drew in more bullish CAD positioning. I’m a bit worried that long Loonie holdings are hitting extremes, though, and that traders might keep favoring the Kiwi if bond yields start dropping again.

In a nutshell, I’m still undecided on which direction I should take on this pair so I guess I’ll just let price action make the decision for me. A candle closing past the doji’s highs at .9340 could convince me to go on a long position while a long red candle below the .9200 mark could put me in favor of a short.



See also: Q2 2017 Trading Performance Review

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