JazzForex

NZDCAD: Pacific versus North America in a Probability Game

Short
FX:NZDCAD   New Zealand Dollar/Canadian Dollar
This pair has basically been ranging in the daily chart since October. The RBNZ recently disappointed more hawkish investors after announcing interest rates would remain the same until at least the end of April. On top of that, the NZD is correlated to the commodity gold , the price of which has not gone up much the last month despite a full-blown currency crisis in Russia and volatility in other markets.

The BoC´s policy interest rate has been at 1 percent since September 2010 and the bank has dropped the use of forward guidance (which obviously leaves the risk of a major surprise). The CAD is correlated to the commodity oil , the price of which rallied today but has dropped the last six consecutive months leaving the Canadian dollar in a bit of trouble. The proximity to the United States favours the strength of this currency.

Apart from these fundamentals, which can sometimes be difficult to assess and weigh, we find a much clearer picture in the chart that might lead to a concrete trade setup. With this we can enter the pattern recognition probability game, as a classic Head & Shoulders pattern seems to be developing on the 4H chart. To enter a short for NZDCAD conservatively, we want to see the following 4 phases completed in the scenario. (1) completion of this reversal pattern, (2) break of the neckline to the downside, (3) retracement back into the neckline and (4) clear bounce of the neckline at which point we could sell this pair.

UPDATE: The neckline was not broken so no trade was entered here and nothing was lost. On to the next trade!

You don´t need to be a weatherman to know which way the wind blows - B. Dylan
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