An Uncomfortable Truth

Here’s an uncomfortable truth for you: Bankers here in the U.S. still refuse to lend.

As I told you yesterday, just my own personal banker refused 40 different loan seekers this year. He’s refusing loans for one reason: The economy just isn’t recovering as the powers that be would like to believe.

It’s not just bankers either. Oil traders aren’t convinced this recovery is real either. Any real recovery would mean a spike in oil prices, so they would be buying. Instead, we’re seeing an oil stock fire-sale.

The guys who normally buy up transportation stocks aren’t buying the recovery party-line either. Last Friday, more traders were dumping transportation stocks than any other time in the last year.

This is just one of several events that Forex traders may have missed over the past week. So let’s take a second to review some of the pivotal changes.

One of the biggest changes promises to not only drive stocks lower, but drive one currency down too…

Oil Falls Apart…and Drags Down the CAD

Oil has not only broken its uptrend line now but it’s also broken down through its ascending triangle pattern on its daily chart. It all happened around Thursday and Friday of last week.

Therefore, there’s likely more downside in store for the price of oil in the near term. As I mentioned yesterday, this is driving one currency lower too – the Canadian dollar.

In fact, this ONE important change caused the dollar to break higher, while the Canadian dollar broke down across the board. This is pretty normal. Oil is priced in dollars, so oil prices tend to fall when the dollar rises in value and vice versa.

The Canadian dollar booms and busts with oil because oil is one of Canada’s biggest exports. When those exports fetch a high price, their profit margins widen. When times are good and oil rises, you can see that action in the Canadian dollar’s price.

On the flipside of the coin, if oil plummets then their profit margins shrink. All of the sudden, Canada’s main export is cheaper and its currency reflects that too.

So when I saw the breakdown in the price of oil, of course, I turned to the USD/CAD chart and saw it break its downtrend. You can see it on the chart below.

A Break DOWN in oil caused a Break UPWARD in USD/CAD!

But then I took this a step further and checked out some other CAD pairs. Sure enough, AUD/CAD was flying high and EUR/CAD broke its downtrend that same day!

This is just one example of how currency crosses (non-dollar pairs) can break out even farther than regular dollar majors.

Reason? They’re more volatile, so they tend to trend better than your normal dollar-based pair. Also, dollar-based pairs tend to be affected by tiny changes in U.S. policy so that can ensure they don’t move quite as far as non-dollar pairs.

What You Can Expect Next

Get set for stocks to drop. We’re already seeing it in oil and transportation, and I feel we’re about to have an across-the-board correction soon.

When it crumbles once again…Canadian-dollar currency pairs will fall hard also. Get set to short all CAD pairs when that happens.

Happy Trading,
Sean Hyman, aka Professor FX

EDITOR’S NOTE: For a limited time, you have a chance to get in on all Sean’s next currency cross winners and every single currency trade Ashish and the rest of our currency team release every week….for one low price. Click here for details.

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