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Analysis

NZDCAD technical analysis | NZDCAD trades inside a wedge formation

BY Janne Muta

|September 7, 2023

This NZDCAD technical analysis article offers a thorough technical scrutiny of the NZDCAD currency pair. The analysis from weekly, to daily, and 4-hour timeframe charts, provide a comprehensive understanding of the pair's performance.

NZDCAD trades in a bullish wedge. Last week's high at 0.8140 aligns with the 38.2% Fibonacci level. A bearish shooting star near the SMA (50) suggests resistance. A break could signal a rally or a move to the 0.7885–0.7906 range.

The analysis reveals that the NZDCAD has been in a downtrend since November 2022 but has recently entered a bullish wedge formation, indicating a potential trend reversal. Key price levels and Fibonacci retracement points are identified, and the article also discusses the psychological impact of round numbers in technical analysis.

Despite the bullish wedge, the market's trend continuation is still a possibility, and a decisive break above or below certain levels could set the direction for the currency pair.

The daily analysis reveals a bearish shooting star candle, suggesting downside momentum, while the 4-hour chart presents another bullish wedge formation with intraday to short-term indications. The article concludes that the market's future direction hinges on resolving these wedge patterns and crossing specific technical thresholds.

Yesterday, the Bank of Canada (BoC) left the rates untouched at 5%, aligning with market expectations and marking a pause in its monetary tightening cycle.

The decision came after significant economic slowdown, including an unexpected 0.2% y/y contraction in Q2 2023. The BoC's Governing Council is taking a cautious approach but indicates that future rate increases could still occur if inflation persists above the 2% target.

The next key risk events for this market include The Canadian PMI numbers today and employment numbers tomorrow and food inflation data and the Business PMI index release from New Zealand next week.

Read the full NZDCAD technical analysis report below.

NZDCAD technical analysis

NZDCAD technical analysis, Weekly Chart

Weekly NZDCAD technical analysis

NZDCAD has been trending lower since the high in November 2022. The downtrend has been pretty well defined with a sequence of lower highs and lower lows. Only lately this pattern has begun to change with the market moving inside a bullish wedge formation. Here’s a quick refresher on this price formation.

Bullish wedge price formation

A bullish wedge formation is a chart pattern that signals a potential reversal or continuation of an existing upward trend in the price of an asset. This pattern is characterised by converging trend lines that form a wedge shape, which is typically observed over a period ranging from a few weeks to several months.

In a bullish wedge, the price of the asset is generally declining, but the rate of decline is slowing over time. This is represented by two converging trend lines, where both the resistance and support lines are sloping downward, but the support line has a less steep slope compared to the resistance line.

The falling wedge is often considered a bullish reversal pattern, suggesting that once the price breaks above the upper resistance line, an upward trend is likely to ensue.

Bullish wedge formation analysis

NZDCAD technical analysis shows the market inside the wedge after it has overshot the descending trend channel on the downside. For the last five weeks, the NZDCAD pair has been gradually slipping lower but still unable to break out of the wedge pattern.

A decisive break above last week’s high (0.8140) would move the market outside the wedge formation and could move NZDCAD to the 0.8290 – 0.8320 range. This is where the SMA (50) and the top of the bear channel coincide.

Fibonacci retracement analysis

If we draw the Fibonacci retracement levels from the July high to the latest low, we see that the 38.2% retracement level (0.8155) coincides approximately with last week’s high (0.8140).

This adds to the technical significance of the price area. Note also that the SMA (20) roughly aligns with the 50% Fibonacci retracement level near the 0.8200 level. This is a round number which in technical analysis is often regarded as having a psychological impact.

Trend continuation ahead?

Even though the NZDCAD pair is trading inside a bullish wedge the wedge needs to be resolved to the upside in order to indicate a rally in the market. Therefore, as long as the market trades below the upper end of the wedge trend continuation is still a possibility.

If the market breaks below the wedge low (currently at 0.7965), we might see a move to the 0.7885 – 0.7906 range. This is where the bulls managed to push the market into a sizeable rally in July 2022 while in October 2022 the same area acted as a resistance. Therefore, it’s safe to assume the area is psychologically significant.

NZDCAD technical analysis, Daily Chart

Daily NZDCAD technical analysis

The daily NZDCAD technical analysis reveals a shooting star candle with a high that roughly aligns with the SMA (50) and is only 0.21% below the 38.2% Fibonacci retracement level.

The bearish shooting star candle indicates the intraday price advance that moved the market to the SMA (50) was rejected pretty quickly. The indication is that the NZD bulls were met by heavy resistance or a large amount of supply near the 50-period SMA.

The SMA (20) is below the SMA (50) and both moving averages are pointing lower while the price has since July traded below the SMA (50). On top of the market making lower highs, these indications show the market has downside momentum.

Momentum analysis

At the same time, we should mention though that the market is trading inside a bullish wedge formation suggesting the downside momentum is waning. Looking at the daily NZDCAD technical analysis we can see how the market has not been able to trade below the August 17th low (0.7991).

If the level isn’t penetrated the market creates a double bottom in the daily chart. This would have bullish indications for the NZDCAD as it would suggest the line of least resistance is to the upside. This could lead to a breakout from the bullish wedge we studied in the weekly NZDCAD technical analysis.

NZDCAD technical analysis, 4h Chart

4h NZDCAD technical analysis

NZDCAD in the 4h chart trades inside another, yet much smaller, bullish wedge formation. If the formation is resolved to the upside and the market can gain enough momentum to push above a technical confluence area at 0.8048 - 0.8053 (4h swing high and the SMA (50) we might see a move to the 0.8080 or so.

Below the above-mentioned confluence area, the market could test the most recent low at 0. 7991.

NZDCAD technical analysis - Currency strength graph

NZD and CAD currency strength analysis

Over the past few days CAD has outperformed all the other currencies except the dollar. The performance difference to the NZD is relatively big with the CAD being the second strongest and the NZD the second weakest currency.

To gain better understanding on the potential future price moves in these currencies refer to the NZDCAD technical analysis above.

Client sentiment graph (NZDCAD technical analysis)

Client sentiment analysis

TIOmarkets clients are quite bullish on NZDCAD with 92% of the client based long the market while only 8% are holding a short position.

Please remember that the retail trader client sentiment is a contrarian indicator as most of the retail traders are on average betting against the market trends. This is why, experienced traders tend to trade against the retail client sentiment. You can follow the TIOmarkets client sentiment live on our Forex dashboard.

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The Next Main Risk Events

  • USD - Unemployment Claims
  • CAD - Ivey PMI
  • USD - FOMC Member Harker Speaks
  • CAD - BOC Gov Macklem Speaks
  • CAD - Employment Change
  • CAD - Unemployment Rate
  • CNY - CPI
  • CNY - PPI

For more information and details see the TIOmarkets economic calendar.

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Janne Muta

Janne Muta holds an M.Sc in finance and has over 20 years experience in analysing and trading the financial markets.

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