The strong reaction to the OPEC decision had forex traders hitting the sell button hard on oil currencies, which unfortunately includes the Canadian dollar and closing out my EUR/CAD short. Here’s a quick trade review.
Original Forex Trade Idea: Short EUR/CAD at Broken Support
The beautiful technical setup on EUR/CAD was basically blown out by the OPEC decision to not cut oil production despite falling oil prices. By not reducing the supply of oil, traders continued to press oil, which of course had the side effect of putting pressure on countries with large oil export industries like Canada and their currency value.
I had a chance to close this trade down early after the OPEC decision was announced, but I decided to hold on with more European and Canadian data coming, and the probability the results will be favorable for a return to a downtrend move. Unfortunately, even though European inflation data came in weak and Canadian GDP shifted into positive territory, it looks like forex traders focused on the positive German retail sales and lower inflation data from Canada. Or maybe it could be that the OPEC decision continues to have a strong effect on the markets today. Whatever the case may be, EUR/CAD continued it’s move higher to break the falling trendline and stop me out at 1.4240.
Total: -247 pips/ -1.0% loss
In hindsight, I think the only thing I could have done was to close the trade early for a small loss as the importance of the OPEC decision grew leading up to the event. Talking heads in financial media were saying that a cut would be unlikely, and with the probability in favor of a potential drop in crude prices, the smart thing to do would have been to take the small loss.
Besides that, closing the trade right after the OPEC decision would have been a good move, but knowing that weak European data and strong Canadian GDP was a good probability, my thought is that the focus would return to fundamentals and a return to the downtrend in EUR/CAD.
For now, the OPEC meeting will continue to be the main market driver, but the fundamentals and longer-term technicals still favor EUR/CAD short bias, so I’ll sit back and look to short this again when it appears sellers are back in control.
This small string of losses has put me in the hole for the year by about -2.5% for the year, but my confidence hasn’t been sapped since I know that sometimes it only takes one good trade to turn it all around. Stay tuned!