Many Forex traders look at other markets when analyzing currencies. Stock market indexes are popular choice as well as commodities. Most recently gold has been mentioned at the same time as US Dollar. Another market is oil, the “blood” of modern world. For years traders and investors have been trying to use crude as a leading indicator for some currencies, and the other way around. While there are correlations, market participants have never really agreed which of the currencies is the most suitable for the purpose. Sometimes CAD-JPY is the cross which gets most attention. At others it is US Dollar Index or USD-CAD. There is no consensus. In 2010 this dilemma could be solved with creation of new “oil currency” by members of oil producing Gulf Cooperation Council. However, under current circumstances, we might have to wait longer.
Rulers of the Gulf Arab oil exporters will meet on Monday in Kuwait and try to push the project for completion in 2010, as has been planned for years. But first they must patch rifts within the group and even restore its credibility. One of the countries, Oman, opted out of monetary union some time ago, saying it wouldn’t be ready on time. United Arab Emirates, the second-largest Arab economy, dealt a serious blow to the Council by pulling out in May in protest at the decision to locate any joint central bank in Saudi Arabia. Ongoing financial crisis in Dubai, one of the Emirates, can only slow the process farther. By now nobody believes that new currency will see the light of day next year, but the meeting should offer some clues as to when we will have new trading instrument.
Week ago at this time I covered two possible trades, NZD-CHF and EUR-GBP, both of them using 4 H charts. The first happened and came to a successful conclusion, while the other is still in development stages. Price remained above entry level, but is coming close to it again.
Looks like Euro could weaken more, so trade is still valid, I think, with sell at o.8972. This particular set up, if happens, has an objective of 100 pips. Another entry under consideration is a sell of AUD-CAD.
This is a longer term, daily chart of this pair. Australian Dollar has been appreciating steadily for better part of the year, but current price behavior suggests possible reversal at current levels. I’d like to get in at 0.9525, with a target of 0.9330, or so. This could take some time, given time frame involved, but I think this is a high probability set up. As always on Sunday, opening gaps are possible, Yen could be fast out of the gate, so I should be busy trading or looking for promising situations.
Mike K.
How do you set your Stop Losses?
These are discretionary trades, so every trade will have a little different stop. At the onset they tend to be wide, and then adjusted. As a general principle most recent high/low is used, but as the trade develops I look for reasons to move it with price. Some of it is explained here http://fxmadness.com/2009/09/19/general/price-action-forex-trading/
If EUR-GBP trade was filled now (which it isn’t)0.9100 or would be stop area and I would look for reasons to move it lower as soon as possible. However, sometimes I don’t wait until stop is reached. If the price doesn’t move as intended, or takes too long I just get out and look for something else.
Interesting about what you call the “oil currency”. i reread your oil post and even now, a year later, not much can be add to it. After going the news regarding this matter today, i agree that we will not see it any time soon.
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The oil currency has been years in the making. Guess it has to wait few more…