Yesterday the Mandelbrot routine took a position, on the short side (it was expected to go down) in the NZDCAD cross. The position was put on early in the morning GMT and Canadian retail sales figures were expected at around midday, which would be close to business opening time in Canada.
Initially, the trade moved well in the right direction, as can be seen on the chart above. Then the retail sales figures were released and they were awful – a negative outcome after many months of steady growth and an expectation that this would be continued.
There was an immediate knee-jerk reaction to this news, with the pair going into reverse on the minute of the release, as seen in the left hand panel below:
A strong move, or market indecision?
But Mandelbrot did not panic – it is an algorithmic routine after all, with none of the anxieties and elations of human traders. And sure enough, within the same hour bar the direction of the morning, to the downside and for the profit of our trade, continued.
Our initial profit target was reached, half the position was taken off and the Stop Loss order was moved to break-even.
So what happened? We can only speculate, but it would appear that the move that had occurred early had either serious sellers of the Kiwi, or serious buyers of the Canadian (otherwise known as the “Loonie” after the bird that appears on the Canadian dollar coin) or both. This could have been an institution that had a specific requirement that was unrelated to the mundane matters involved in currency trading per se. Or it could have been a group of traders who believe that this pair is genuinely headed down, and saw the reaction to the retail sales as an opportunity to get in. Either way, the pattern illustrates the sometimes muddled nature of the Forex market, for which we must at all times be ready. The pair eventually did turn around again and go up, and our trade was stopped out at break-even on the second leg of the position.