Trading the Comm Dolls

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Trader and author Raghee Horner of IBFX mentions her love for Com Dolls:

As she says, “With my nearly twenty year background in commodity futures it’s not surprising to me that I often gravitate to “commodity currencies” like the USD/CAD and AUD/USD. I love the synergy these two pairs have with crude oil and the commodities index, respectively.”

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I personally take a slightly different approach to Raghee on this. She’s as ardent fan of trading the USD/CAD in relation to crude oil, but the problem that I’ve found with USD/CAD is that the USD is VERY fickle. You have to remember that MAJORITY of the world’s trades involve the USD, hence you’re gonna get lots of fluctuations on a variety of news reports. Just take a look at the Forex Factory Calendar on any given day, and you’ll see what I mean. Scary stuff.

Hence, I prefer trading the CAD/JPY as a substitute for the USD/CAD, and the reason why I think CAD/JPY is a good pair to trade in terms of oil, is because Canada is an exporter of oil, and Japan is an importer of oil, so obviously this is reflected in CAD/JPY, and you avoid all the “heartattacks” that the USD brings.

My point is, the USD/CAD can react to virtually anything, even to news reports that don’t really appear to be that big of a deal. I have noticed this more and more, and it’s becoming kind of annoying. Nowadays, when we trade the dollar, we have to be concerned about “relatively” small news which can give some nasty surprises.

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Anyway, Raghee continues:

“The price action in crude oil as prices are finding support above the key 80.00 level is pushing the Canadian Dollar higher against the U.S. Dollar. The value of the Canadian Dollar and strength of the Canadian economy has a strong correlation to the price of crude oil. Consider that a strong crude oil market is also usually a reflection of a weaker U.S. Dollar. So the impact on the USD/CAD is double: The weaker U.S. Dollar strengthens crude oil prices while allowing the USD/CAD to trade lower.”

You can read all of her insightful post over at:

http://www.ibfx.com/Corporate/post/2010/03/18/Comm-Dolls-on-the-Move.aspx