If you swing trade Forex, here’s a great short setup

  • September 7, 2005
  • Dave Floyd


Dave Floyd is a professional FX and stock trader based in Bend, OR and the
President of Aspen Trading Group. Dave’s approach to FX combines technical
and fundamental analysis that results in trades that fall into the swing
trading time frame of several hours to several days. For a free trial to
Dave Floyd’s Daily Forex Alerts

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Traders, by default, for the most part are technically driven
— and rightfully so.  Given that traders in general are not trying to make
long-term predictions, fundamentals rarely are part of anyone’s pre-trade
analysis — fundamentals are simply not a good timing tool.


However, there are times when fundamentals coincide with a
solid technical set-up, in these cases, the results can be more robust as well
as increasing ones conviction on the trade.  As of today, I see such an
example.


You will recall that a couple of weeks ago (8/17 I believe) I
had established a short in NZD/CAD at .8420.  Initially, my ideal target was the
.8000 level, a level I feel will still be seen by year-end.  However, based on
the technicals at the time, I ended up covering that trade at .8250 and .8356 —
solid results regardless. 


Other than a solid move higher since then to the .8460 level,
not much has changed in terms of my outlook for this cross going forward. 
Today’s rate hike by the Bank of Canada (BoC) and the current technical backdrop
have brought me back into this trade.  Let’s review:



  1. BoC is likely to continue to raise rates — RBNZ (Reserve
    Bank of New Zealand) is likely to hold rates steady, perhaps even drop them a
    notch in 2006.
  2. Higher oil prices will positively impact Canada — no real
    benefit seen for New Zealand, if anything a slight negative.
  3. Canada runs a current account surplus — New Zealand has one
    of the worst current account deficits in the G10

All these reasons sound great on paper, but again, it only
matters when other traders also share these same views — hence, timing is always
tricky by these metrics alone. 


Technically however, NZD/CAD looks great from a short
perspective.




As always, feel free to send me your comments and
questions.



Dave


 


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