Oil Price Action And The Currencies Around It

OIL BOUNCE? - The oil market has been locked in an intense downtrend over the past several months, giving back some 60% of its gains from the highs in June 2014. Over this time, there have only been a few days where the market has managed a close above the 10-Day SMA. And now that the market is so violently stretched below $50, perhaps this latest rare close above the 10-Day is worth some attention. After all, no market goes in one direction forever, and surely at current levels, the pressure on producers is getting to a point of serious discomfort. So with the market closing back above the 10-Day SMA this past Friday, I am encouraged with the prospect of at least some form of a healthy corrective bounce before any legitimate consideration is to be given to bearish trend resumption.

CORRELATED CURRENCIES - To that end, I would say it will also be worth watching currencies like the Canadian Dollar and Norwegian Krone, both of which correlate strongly with the price of oil, taking huge hits over the course of the commodity slide. This in conjunction with an already stretched US Dollar makes the case highly compelling for some form of a pullback in USDCAD and USDNOK in the sessions ahead. I am already long crude oil from last week and in the money just a bit, and after taking a shot and getting stopped for a small loss on a USDCAD short last week, I have since taken another shot, with a short in play from 1.2025. I am not looking to hold this position for too long and have already trailed my stop-loss to cost on the USDCAD short to eliminate risk, but I do believe we can see follow through into the 1.1600's in the sessions ahead.

Keeping a close eye on oil and correlated currencies. Via @joelkruger

AN UNDERVALUED MARKET - Another market I am watching but don't have any exposure to after taking a shot and getting stopped last week is EURNZD. I attempted a long at record lows, but the market showed no reversal when the position was taken, forcing me to exit for a small loss. But I do like the upside in the market over the medium-term and believe that as much as it seems the trade may not make sense on the surface, with much of the Eurozone troubles priced in, and still a lot that has yet to be priced in to the downside in New Zealand, the trade really does make a lot of sense. We have seen major signs of risk liquidation in recent days, and if this risk liquidation theme intensifies, it will be the higher yielding Kiwi that is exposed. We aren't living in a world where higher yield is as attractive as it once was and I believe the RBNZ isn't going to be too excited with the prospect of maintaining a strong currency in the middle of a global race for the weakest currency. So the idea may sound wacky, but I think I will be proven right. No trade right now but looking for another shot.

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