Trading Oil Right Now Is Crazy. Commodity Currencies as an Alternative. USD/CAD, USD/RUB and USD/MXN

The oil-market-crash saga continues and traders are trying to decide what’s the right move under these conditions. The thing is, it’s very tempting to buy oil for around 5 USD per barrel but it’s also a highly risky move and best left to traders who can handle exceptional volatility.

Some traders are jumping in on buying oil and see this as a bargain of a lifetime, but more reasonable traders are taking into account the ripple effect such a big crash can have on the market and they are eyeing other instruments on the market which are presenting trading opportunities thanks to this historic market crash.

If you haven’t figured out these instruments then you’re in luck, because we’re about to highlight the star assets which have showed the most potential since Monday. What we’ll focus on are commodity currencies, these are currencies of countries which heavily depend on oil export and hence are affected by the crash. So, the Russian Ruble, the Mexican Peso and the Canadian Dollar will take the spotlight today.

First let’s look at the USDCAD; the US and Canadian dollar pair has been weakening since the very beginning of 2020 and its bear run lasted until the middle of March. Most recently the pair saw a bearish correction, but that correction seems to be coming to an end. Why do we think so? The price formed an inverse head and shoulders pattern and the neckline has already been broken. As long as the price stays above the neckline, sentiment remains positive.

Next let’s look at the USDMXN; the pair surged in the second half of February, and the situation with oil does not look terrible for the Mexican Peso. In the long term, the price created a head and shoulders pattern and the breakout of the neckline is a potentially positive sign for the Mexican currency.

Lastly, we’ve got the USDRUB; the upswing for this pair started in January. After a small correction in March, the pair is back on an uptrend, which means the Russian currency is weakening against the USD. Sentiment for the pair remains positive.

Some may say that the movement of emerging markets’ currencies is simply because of the effect the coronavirus lockdown has had on the world, and this does play a part, however these movements are magnified by the low prices of oil and the effect this has on export value. For example, as you see on the chart there’s a comparison between the USDMXN and the USDPLN. While the PLN is weaker than the USD, it’s not as weak as the MXN is against the USD, why? Because Mexico is a crude exporter and hence is losing money on its oil exports with such low prices, which is affecting its currency, while Poland which is a crude importer, is paying less for receiving oil, and hence its currency isn’t as affected.

Throwing new instruments in the mix is a great way to look at the market, especially in such volatile times in order to take advantage of the market without incurring unusually high risks.