Huge move in oil futures today had me rethinking my long Canadian dollar positions given the Loonie’s strong correlation with oil prices. I decided to close one of my short NZD/CAD position today to as price action in the pair confirmed the invalidation of my original ideas. Here’s quick review.
NZD/CAD Returns to the Downtrend?
Two weeks ago, I decided to short NZD/CAD play my fundamental bias in favor of the Loonie over the Kiwi, based on the idea that an OPEC agreement to cut oil production could lift oil prices, and the Canadian dollar based on their strong correlation given that oil is Canada’s top export.
Well, OPEC did come out with a record production cut deal last week but that didn’t produce a bounce in crude oil prices as the cut wasn’t enough for traders to forget of the massive lack of demand due to the global economic shutdown. So, after an quick positive reaction to the OPEC event, oil fell and never really looked back. And today, we even saw the May WTI oil futures contract trade in the negative, dropping an unbelievable 100% on the session. I think we’ve done see it all!
Given these developments, it’s understandable to the Loonie lower against all of the majors on the session, and with this story not likely going away anytime soon, I decided to close my short NZD/CAD position at market (0.8538) today to reduce my exposure to the massively negative oil story.
Total: -88 pips / -0.50% loss on 0.50% max risk
I think this was a good move given the fundamental story change, and the price action confirmation (market breaks above falling ‘highs’ on the one hour above) was a great signal of that.
Looking forward, I’m stepping away from my long Loonie bias for now, but I will continue to watch this pair for a setup if oil stays volatility.
Anyways, what do you guys think of how I handled NZD/CAD? Let me know in the comments section below!
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