NZD/CAD has been one of the best performing currency pairs since the beginning of the year, rallying nearly 500 pips before setting a new high at 0.9208 and falling back slightly. That pullback has actually provided a very attractive technical setup and the pair bounced perfectly from the 38.2% fib, suggesting new highs are in the making. The 38.2% fib is a challenging one to use, it very rarely holds up, so front running a test of it isn’t a very good idea, but when it does hold up? Price tends to really move higher from it.
This about what the implications are for a 38.2% fib hold – bears could only push price down about 1/3 of a significant rally that saw the RSI break above 80 on 3 occasions. Profit takers and top pickers couldn’t even push price down to the 50% mark, meaning that the bulls are still firmly in control. In this case, the ideal entry was clear the 0.900 level, but since we missed that entry, we’ll have to look for another possibility.
The next possibility would be a retest of the broken flag pattern that launched price higher. This retest aligns nicely with the 50 EMA on the four hour chart at 0.9056. Longs from these levels with stops below the 38.2% fib, and targets above the 0.9208 highs offer a great risk / reward and a high probability.
By Liam McMahon, Currency Strategist
