Jumping in at market on a simple support break happening in NZD/CAD after a set of lower highs. Is it a real breakout or will I get faked out?
Support Break on NZD/CAD?
Looking at the four hour chart above, we just saw a big red candle right at a very strong area of interest around the 0.9300 handle. It first held as resistance back in February and then as support in March, but it’s currently breaking down.
And with a string of lower ‘high’s through out March (or you can argue a kind of head-and-shoulders neckline break), it’s pretty clear to me that the bears are in control at the moment, and likely able to push the pair past that major area of interest in the short-term.
Fundamentally, I think with trade war fears easing and oil prices rising (likely supported by price hikes by Saudi Arabia and decline in U.S. crude stocks), I’m a fan of the Loonie over the Kiwi, especially with recent interest rate hikes from the Bank of Canada and NAFTA fears also subsiding. There’s also a small chance of another rate hike at the upcoming BOC meeting that could support the Loonie in the short term.
So, I’m shorting this pair and I’m doing it at market now that I’ve got a strong bearish candle on the break. My stop is my usually weekly ATR, and my targets will be the support areas that helped lift the pair higher in the first quarter. Here’s what I’m doing:
Short half position NZD/CAD at market (0.9264), max stop loss at 0.9445, max target at 0.9020 for a starting return-on-risk of around 1.35
I’ll be risking only 0.5% of my account on this position and as usual, I’ll look to maximize the trade by adding to my position/roll stop down to max out the trade if the conditions continue to favor the Canadian dollar. Of course, I’ll look to close out quickly if conditions or data changes back in favor of the New Zealand. Stay tuned because we’ve got a busy month ahead for both currencies on the forex calendar!
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.
This content is strictly for informational purposes only and does not constitute as investment advice. Trading any financial market involves risk. Please read our Risk Disclosure to make sure you understand the risks involved.