NZD/CAD in focus ahead of important New Zealand and Canadian data

There are a number of currencies which may experience increased levels of volatility from time to time this week. Chief among them are the Canadian and New Zealand dollars.

As mentioned in my earlier post, trading is likely wind down ahead of Christmas, but there are a number of currencies which may experience increased levels of volatility from time to time this week. Chief among them are the Canadian and New Zealand dollars. That’s because we will have important economic data from both nations this week: GDT Price index and GDP from New Zealand, and core CPI and retail sales from Canada. This makes the NZD/CAD one of the more interesting pairs to watch. Ahead of the data releases we are somewhat bullish on this pair because of (a) technical reasons – see below – and (b) Canada’s crude oil problems, where a glut has formed and prices have plunged as its main customer, the US, continues its drive in becoming self-sufficient in its energy needs due to the shale revolution.

Ahead of the above data releases, the NZD/CAD could be in the process of forming a rounded bottom. It has broken its market structure of lower lows and lower highs after its recent upsurge from long-term support around the 0.8650 region. In addition to this, there are a few other technical considerations that also point to higher prices. Among them, the behaviour of price action in the last run down before the move up to the high of 0.9920/5 looks very similar to the most recent downward move. If past price action is anything to go by – which is basically the basis of technical analysis – then one could reasonably expect it to form a similar path and potentially head towards parity.

The bears however would argue that with price being below the 200-day average and below the most recent significant swing high at 0.9750 that the path of least resistance remains to the downside and that this recent pullback could just be a normal retracement in what still is a downtrend. In addition, a potential Head and Shoulders reversal pattern could be forming with the neckline coming in around the 0.8650 area.

The truth is no one knows what’s next and projecting a 1000-pip rally, let alone holding it for that long, is a very difficult task. So, what’s the point of talking up the prospects a potential rally if you are not sure it will come to fruition, you may wonder? Well, regardless of what happens, it is always a good idea to have solid reasons and know which direction price is most likely to head towards. Once you work out the path of least resistance with a certain degree of confidence, then focusing on finding opportunities in that direction can make trading a lot easier. In any case, I am of the view that one should trade from one level to the next, and move on to the next opportunity. As they say, trading is a moving business, not storage.

With that in mind, and given the above considerations, my main bullish objective is the next area of resistance, which was previously support, at around 0.9180 to 0.9220. If, when and how price gets to this area and what it does there, then one can easily revise their views. Short-term supports that the buyers need to defend are at 0.9000, 0.8925 and 0.8820. Clearly, if the higher levels of support are defended then this would suggest that the bulls are in firm control, while the deeper price pulls back now, the lower the odds of the bulls remaining in charge for too long. In any case, my bullish view would become invalid in the event the NZD/CAD breaks below the most recent low around the 0.8650 area. 

Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.