Sold at 0.8851. TP at 0.8700. SL at 0.8950

On Monday, Adam posted this trade idea from CitiFX.

As outlined, the reasons cited was they expected oil to help (higher), BOC to be more supportive at their interest rate statement and presser and expectations that NZD would weaken due to deterioration of the terms of trade.

The trade was to sell at 0.8851 with a SL at 0.8950 and take profit at 0.8700. What has happened?

Fundamentally,

  • Oil prices have moved higher since Monday. The low on Monday was around $39.25. The high reached $42.39 yesterday. Currently the price is at $41.87.
  • The Bank of Canada kept rates as expected. In my opinion, the Poloz press conference yesterday was a little less hawkish given the better employment. However, he did balance things out,
  • The news out of New Zealand has been minimal. Today, however, there has been some selling. AUDNZD moved higher on the back of better AUD employment. The RBNZ confirmed that there was a leak of the March rate decision. Those things seemed to help pressure the NZD today. The currency is in fact the weakest of the major currencies today.

What has all that done to the CADNZD?

Well absent the move down today, the pair has not really done much.

The high on Tuesday moved to 0.8905 (unrealized loss of 55 pips at the peak). That move technically took the price above the 100 hour MA (blue line in the chart below), but found sellers before reaching the 200 hour MA (green line in the chart below). The CitiFX risk level at 0.8950 was not threatened of course.

The low - prior to today - was at 0.8812. That was a 39 pip profit at the low point. In fact there were two lows on Tuesday and Wednesday at that level. The double bottom technically helped contribute to the rally into the close yesterday.

Today, that double bottom was breached and the low for the week was extended to 0.8785 - an unrealized profit of 66 pips at the low. Since that low, the pair has been trading in an up and down range - above and below the double bottom - with 0.8831 as the high and a low at 0.8786 - a pip above the earlier low (another double bottom). The pair currently trades a 0.8814 - not far from the previous double bottom.

How do I see the trade technically now?

From a technical perspective now, the pair today has advanced a bearish bias modestly.

  • The price failed on a move back above the 100 hour MA (blue line in the chart above). BEARISH. That MA is at 0.8846 currently.
  • The 200 day MA (green step overlay line in the chart above) - which admittedly has seen the pairs price trade above and below all week - was breached to the downside and the market is trying to put some distance between the price and that MA currently at 0.8848 (BEARISH)
  • Near the low today is a parallel trend line which is the next target to get and through if the price is to continue to go lower.

What about the stop now?

Given the 100 hour MA and 200 day MA at nearly the same level and the price making a break lower, I would now expect that should the price move above those MA levels, that traders might give up on the move lower.

So for me, my risk would not be way up at 0.8950 anymore. It just does not make sense. Those MAs are the close risk now.

A more conservative stop would now be the declining 200 hour MA at the 0.8883 (green line in the chart above). The advantage is both the 100 and 200 hour MA are moving lower. So as long as time goes by, the risk gets less. In between the 100 and 200 hour MA is a trend line connecting recent highs.

IN summary, although the premise of the deal has not really panned out fully (oil price higher, but BOC was not fully supportive fundamentally), the price action is looking a touch more bearish. This allows for a reevaluation of the risk on the trade, given the modest move lower. If you can risk less that is always better.

On the downside, my next targets come in against the lower/bottom trend line at 0.8770 currently (and moving lower). The low for the year at 0.8751 is also in the way of the TP level at 0.8700. Those levels will be hard to breach (especially the low for the year) but if they are it should be smooth sailing to the take profit level. Trade alive. Bias bearish. Risk should be less.