NZD/CAD: Momentum Recovery to Spark Short-covering Rally - 10 February 2020

Ibeth Rivero

New Zealand Prime Minister Ardern confirmed that the economy is facing disruptions due to the deadly coronavirus, but noted they are manageable. China already canceled export orders for meat, dairy, timber, and seafood. The tourism sector has been severely impacted, with over 87% of it related to China, the biggest trading partner of New Zealand. Price action in the NZD/CAD stabilized inside of its support zone, and a short-covering rally is now pending.

The Force Index, a next-generation technical indicator, recorded a lower low as this currency pair moved into its support zone. Momentum started to recover quickly, following a breakdown below its ascending support level. It resulted in a conversion of its horizontal resistance level into support, as marked by the green rectangle. The Force Index is now favored to accelerate above the 0 center-line and into its descending resistance level, placing bulls in charge of the NZD/CAD.

A breakout in this currency pair above its support zone located between 0.85048 and 0.85397, as marked by the grey rectangle, is expected to spark a short-covering rally. This should close the gap between the NZD/CAD and its descending 38.2 Fibonacci Retracement Fan Resistance Level. Forex traders are advised to monitor the intra-day low of 0.85691, the low of a previous pause from where price action advanced further to the upside. A move above this level is anticipated to result in the addition of new net buy orders. You can learn more about the Fibonacci Retracement Fan here.

Adding a bullish fundamental catalyst to the NZD/CAD is the depressed oil price, directly impacting the Canadian Dollar. Last Friday’s strong employment report and upside surprise in the Ivey PMI failed to significantly lift the currency. This currency pair is likely to challenge its short-term resistance zone located between 0.86262 and 0.86577, as marked by the red rectangle, enforced by its 50.0 Fibonacci Retracement Fan Resistance Level. It will result in a higher high, enabling an extension of the breakout sequence in this currency pair.

NZD/CAD Technical Trading Set-Up - Short-covering Scenario

  • Long Entry @ 0.85150

  • Take Profit @ 0.86550

  • Stop Loss @ 0.84750

  • Upside Potential: 140 pips

  • Downside Risk: 40 pips

  • Risk/Reward Ratio: 3.50

In the event of a reversal in the Force Index below its ascending support level, the NZD/CAD is expected to attempt a breakdown. The downside potential remains limited to its next support zone located between 0.83478 and 0.83804. With the long-term fundamental outlook for this currency pair bullish, Forex traders should consider this an excellent buying opportunity.

NZD/CAD Technical Trading Set-Up - Limited Breakdown Scenario

  • Short Entry @ 0.84500

  • Take Profit @ 0.83650

  • Stop Loss @ 0.84850

  • Downside Potential: 85 pips

  • Upside Risk: 35 pips

  • Risk/Reward Ratio: 2.43

NZDCAD

About the Author
Ibeth Rivero

Ibeth contributes daily market commentary in both English and Spanish (both of which she speaks fluently) and she also manages the DailyForex mobile app to ensure that traders around the world are getting important market updates in real time.

Currency Pairs:
Comments

Did you like what you read? Let us know what you think!

exclamation mark

Please make sure your comments are appropriate and that they do not promote services or products, political parties, campaign material or ballot propositions. Comments that contain abusive, vulgar, offensive, threatening or harassing language, or personal attacks of any kind will be deleted. Comments including inappropriate will also be removed.

0 User comments
Add Comment

exclamation mark

Please make sure your comments are appropriate and that they do not promote services or products, political parties, campaign material or ballot propositions. Comments that contain abusive, vulgar, offensive, threatening or harassing language, or personal attacks of any kind will be deleted. Comments including inappropriate will also be removed.

Read more
Add new comment
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.