AUD, NZD, CAD
Commodity Linked Currencies:
Most majors have been range bound for the last month and some even longer then that. If you play support and resistance then your entries points are relatively defined. However, what do you trade when handles are in between S & R?
The first assessments a trader should make are what currencies have recently retraced the most and why. Secondly a trader needs to assess current market conditions. Let’s apply these 2 rules. Through last week, the Commodity Linked Currencies were down the most versus the Greenback. The reason these pairs were down was due impart to Oil losing some momentum and a firming of the Dollar on risk aversion.
A brief assessment of current market conditions has the Dollar on its heels and Oil moving higher. Additionally, EUR & GBP are currently near resistance levels so unless one thinks the EUR or GBP will finally break resistance one will need to look elsewhere for the best trade.
The AUD, NZD, and CAD are among the Commodity Linked Currencies. These pairs are currently the furthest away from resistance and therefore have the best risk to reward ratio. Couple that with a weak Dollar and overall strong commodity prices and you expect these pairs will move the most. Chart A above displays the movement in the price of Oil against the AUD, NZD and CAD. From this Chart you can see the positive correlation in price action. As Oil appreciates so do these currencies and vice versa.
The bar chart below displays percent gainers and loser against the Dollar for November 23rd. You will notice that the NZD, AUD and CAD are in the top 4. Add this analysis to your repertoire and it provides another venue for trading in these market conditions.