Option to go long on NZD/CAD

ACTION

A buy on a daily close above 0.8020 gives a bro R/R ratio with a potential 1st target in the 0.82 area. The 2nd longer-term target is in the 0.85 – 0.86 zone. A buy on a daily close above 0.8020 gives a bro R/R ratio with a potential 1st target in the 0.82 zone. The 2nd longer term target is in the zone 0.85 – 0.86.

FUNDAMENTAL

The central banks of both currencies are in a rate hike cycle. The interest rate differential is currently marginally in favor of the Canadian dollar (0.25 basis points), but New Zealand’s economy is showing stronger growth, unemployment is at very low levels, inflation is at a 30-year high, and housing prices are still rising annually base. This suggests that the central bank of New Zealand will go ahead with rate hikes and future interest rate differential expectations are in favor of the NZD. On the other hand, Canada’s main trading partner is the United States, which is expected to enter a recession.

TECHNICAL ANALYSIS

The monthly chart shows that the currency pair is in a downward correction. Currently, the price has found support at the bottom of the corrective channel. Sequential has printed a 9, the DeMarker oscillator is reversing from the oversold zone.

An uptrend has started to develop on the weekly chart. The first resistance is in the zone 0.82-0.83, the second – 0.85 – 0.86.

The price makes a successful breakthrough of the downward trend line, MA65 and MA 100 already act as support. I expect a continuation of the upward movement to the zone of the 1st resistance – 200MA and the upper part of the ascending channel – (0.82).

BANK EXPECTATIONS

The expectations of the major investment banks are that the bottom has been reached this quarter and the currency pair will be in the 0.79 area in 2023. Specifically, for this week, the banks’ expectations in an upward direction are at levels of 0.8104 and, respectively, for the month at 0.8225.

ALTERNATIVE SCENARIO:

If, after the breakout, the price comes back and closes below the ascending channel, 65MA and the lows of the last 2 weeks, this will mean that the uptrend is currently over and creates the potential for a test of the lows of the year. The successful sop loss is below the 0.79 level measured against the size of the margin account.