NZD/CAD Analysis: Liquidity and Supply Zone Reaction Timeframe: NZD/CAD Analysis: Liquidity and Supply Zone Reaction
Timeframe: 4-Hour
Overview:
This analysis focuses on the current price structure and potential setups for NZD/CAD. The market is approaching a significant point of interest (POI) at a supply zone, where a high probability of price reaction is expected. Key concepts such as liquidity grabs, imbalances, and market structure shifts are highlighted.
Key Observations:
Point of Interest (POI):
The supply zone marked between 0.8218 – 0.8258 represents an area where selling pressure previously overwhelmed buyers.
This zone aligns with previous price inefficiencies and an imbalance (imbL), making it a critical test for the current bullish momentum.
Liquidity to Take:
There’s visible liquidity resting above recent highs within the supply zone. This liquidity, highlighted as "lq to take," might attract price before a potential reversal occurs.
Smart money tends to grab liquidity before deciding the next directional move, making this a key area to watch.
Market Structure Shift (MSS):
The MSS level marked at the lower end of the chart indicates where the market shifted from a bearish to a bullish structure.
This bullish structure currently holds, but the POI could serve as a zone for a trend reversal or continuation after a retracement.
Imbalance:
The chart highlights an imbalance zone (imbL), representing an area where price moved too quickly, leaving inefficiencies in the market.
The imbalance is a magnet for price action, often serving as a draw for liquidity seekers.
Liquidity Target:
The diagonal line pointing towards "lq to target" illustrates how the market cleared sell-side liquidity before continuing upward.
The price appears to be in a liquidity-seeking phase, with the supply zone as the next likely target.
Trading Plan:
Scenario 1: Rejection from the Supply Zone
Confirmation: Watch for bearish candlestick patterns (e.g., engulfing or pin bars) in the supply zone. This signals sellers entering the market.
Entry: Enter short around 0.8218 – 0.8258, with confirmation from price action.
Stop-Loss: Above 0.8258 (beyond the zone).
Take-Profit: Target the recent liquidity sweep near 0.7998, aligning with previous demand.
Scenario 2: Breakout Above the Supply Zone
Confirmation: A strong break and close above 0.8258, followed by a pullback into the zone.
Entry: Enter long on a pullback into the broken zone (now demand).
Stop-Loss: Below 0.8218 (mid-range of the zone).
Take-Profit: Aim for higher levels, such as 0.8300+, based on higher timeframe structure.
Key Levels:
Supply Zone (Resistance): 0.8218 – 0.8258
Demand Zone (Support): 0.7998
Imbalance Zone: Around 0.8180
Conclusion:
NZD/CAD is at a critical juncture near a supply zone. Whether price rejects or breaks through will determine the next major move. Be patient and wait for price action confirmation before executing trades. This setup offers a solid risk-reward ratio for both reversal and continuation scenarios.
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