Playing strengths against weaknesses is often what investing is all about. Recently we published an article about the effectiveness of the hedging strategy used by Southwest Airlines (LUV) in the energy market. That hedging activity has placed LUV at an advantage versus their less prepared competitors. In the stock market traders often look for this type of situation and spread two stocks in the same industry like a currency pair. In this situation a stock trader would buy LUV and short a stock like Delta Airlines (DAL). The assumption being that if the market falls DAL will fall faster than LUV creating a profit. Similarly if the market rises LUV should outpace DAL creating profits. Trading the stock market like this is one way to try to minimize the risk concentrated in the airline industry itself.
The same situation exists in the forex where currency pairs are already contrasted against each other. This week I am particularly interested in the AUD and the EUR as the RBA looks likely to leave rates alone while the ECB is expected to raise them. Rather than trying to trade the channels that the EUR/USD and AUD/USD are in we could contrast the two base currencies as a cross. The idea is the same as the one we discussed above with the two airlines. In the video, I will walk through a nice setup on the EUR/AUD that could easily breakout to the upside this week with all the news that is due to be released.
The same situation exists in the forex where currency pairs are already contrasted against each other. This week I am particularly interested in the AUD and the EUR as the RBA looks likely to leave rates alone while the ECB is expected to raise them. Rather than trying to trade the channels that the EUR/USD and AUD/USD are in we could contrast the two base currencies as a cross. The idea is the same as the one we discussed above with the two airlines. In the video, I will walk through a nice setup on the EUR/AUD that could easily breakout to the upside this week with all the news that is due to be released.
