Skip to main content

Effects of Oil Price Movement on Forex

Oil prices eased slightly on Tue, 08-052018, a day after hitting 3-1/2 year highs, as investors braced for President Donald Trump’s decision on whether to withdraw the United States from the Iran nuclear deal, a move that could disrupt global oil supply.
crude decrease- equidiousresearch.jpg
US Dollar is currency of international trade, so for all practical purpose all buy and sales on international level is defined in terms of USD. Also, US is the biggest importer of crude oil. So say when crude price go up, it means US will be shelling out more dollars to buy it, which means more dollars are going out of the country and hence the dollar  will weaken.
US is also one of the biggest oil producer – so when oil price will go up, its own oil revenue will also go up – this impact might counter the fall in dollar a little but not significantly because it is a net importer.
A hidden string ties together currencies and crude oil, with price actions in one venue forcing a sympathetic or opposing reaction in the other. This correlation persists for many reasons, including resource distribution, balance of trade (BOT) and market psychology. And crude’s significant contribution to inflation and deflation intensifies these interrelationships during strongly trending periods, both higher and lower.
Equidious Research-crudeoil
Crude oil and currency co-relation
In addition, crude oil is quoted in U.S. dollars (USD) so that each uptick and downtick​ generates immediate realignment between the greenback and numerous forex crosses. These movements are less correlated in nations without significant crude oil reserves, like Japan, and more correlated in nations that have significant reserves, like Canada, Russia, and Brazil.

CONCLUSION:

Crude oil shows tight correlation with many currency pairs for three reasons.
  1. The contract is quoted in U.S. dollars so that pricing changes have an immediate impact on related crosses.
  2. High dependence on crude oil exports levers national economies to uptrends and downtrends in the energy markets.
  3. Collapsing crude oil prices have triggered sympathetic declines in industrial commodities, raising the threat of worldwide deflation that undermines economic growth, forcing currency pairs to reprice relationships. 

Comments

Popular posts from this blog

Fundamental Analysis-Impacts of Non Farm Payrolls Data on Forex Market

Non farm payrolls in the US increased by 164 thousand in April of 2018, following an upwardly revised 135 thousand in March and well below market expectations of 192 thousand.  The most important payroll statistic that is analyzed from the report is the  non-farm payroll  data, which represents the total number of paid U.S. workers of any business, excluding general government employees, private  household employees , employees of  nonprofit  organizations that provide assistance to individuals, and farm employees. Non Farm Payrolls Indicator The Non Farm Payrolls indicator measures the net change in the number of people employed within the U.S. economy in jobs other than those which are farming or agriculture related. When the NFP data is rising, it means businesses within the United States are hiring more staff, usually in response to improved economic conditions and increased demand for their products or services either domestically or overseas...

Know More About- Commodity Currencies Trading

Currencies of countries that rely heavily on the export of  commodities  are often referred to as  commodity currencies . An important factor that any  forex trader  should consider is that the value of commodity currencies usually rise and fall in tandem with the value of the country's main commodity exports. What Are Commodity Currencies and Pair: Both the value of the  commodity  and the country's trade balance, with respect to the commodity, are significant factors in the valuation of commodity currencies. The most commonly traded commodity currencies are: Canada (CAD) New Zealand (NZD) Australia (AUD) The three  commodity pairs  are: USD/CAD AUD/USD NZD/USD These  pairs  are highly correlated to  commodity  fluctuations in the world markets and are the most heavily traded  commodity pairs  in  forex .  Forex  traders often trade these  commodity pairs  to gain expos...

TOP 7 MISTAKES IN FOREX TRADING

NO TRADING PLANS: A trading plan is a strict set of rules, half of which a trader draws from their trading strategy and the other one from their money management strategy. The plan may be then complemented by as many more points as the trader sees fit. WHAT IS TRADING PLAN: Specific market conditions for entering a trade; The amount of money to risk in a trade; Specific market conditions to get out if you are wrong (stop-loss); Specific market conditions to get out if you are right (take-profit); Approximate time for the market to reach your target; Note down and record everything! Write this list down as postulates and have it front of you before, after, and during your trading. RISKING TOO MUCH ON ONE TRADE: Never take too much risk in one trade. Forex brokers are allowed a lot of freedom in terms of leveraging their trading account, while beginner Traders lag behind in money management discipline. A combination of these two leads to high risk, hazard trading. Always...