#TradingAnalysis101

Some traders use only technical analysis, while others prefer to rely on fundamental analysis when planning their trades. Sometimes these two trading approaches can be combined to create one robust trading strategy.

For example, a combination of technical and fundamental analysis could be used to better understand the correlation between oil and currency prices. This could help traders better understand the markets when taking a position on oil prices. For example, countries that produce and export oil in high volumes are dependent on high prices for oil. For them, a sharp drop in the price of oil would typically impact the value of the country’s currency.

Canada is a significant producer of oil and other energy products. In April of 2020, the Canadian dollar tumbled significantly against the US dollar, as the oil markets fell dramatically. Traders aware of the connection between oil and USD/CAD could have taken advantage of the Canadian Dollar’s recovery in the weeks following oil’s recovery by going short this pair until they saw a break in the trend.

Another example of being cautious and taking fundamental aspects into consideration, supply and demand in particular, was when the SARS-Cov-2 pandemic hit. The fear of coronavirus spreading and lockdowns being put in place around the world caused oil demand to drop sharply. U.S. warehouses were full of oil, there was nowhere to store it, and nobody wanted to buy it. The date of the May West Texas Intermediate Crude Oil contracts expiry was approaching, causing the price to be quoted negative for the first time in history, dropping from $18 a barrel to around -$37 a barrel.