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Price of Crude Oil and the US Dollar Connection

Discussion in 'Forex Discussions' started by painofhell, Feb 25, 2016.

  1. painofhell

    painofhell Content Contributor

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    The Price of Crude Oil and the USD.
    Crude oil is one of the most interesting and lucrative commodities in the market. There are lots of factors influencing the price of crude oil and its volatility, and one of the most important factors is the U.S. Dollar. The value of USD is the most important component in the black gold’s price. A strong USD will put the price under pressure, while a weaker dollar will support higher prices.

    The Crude Oil Price Correlations.
    The “black gold” has also a strong correlation with the stock market. A weak dollar and the growing economy pushing the stocks in green area and the Oil commodity tend to move to the same direction. On the other hand, when its prices are extremely high, above 100$ a barrel can stifle the economy. In the case that the price is above the 100$ watermark, it tends to correct itself and might cause a negative correlation with stocks.

    Is there a clear and constant correlation between Crude Oil and the USD? Most of the time yes, the price of the commodity is positively correlates with the EUR/USD, but this correlation is defined by the USD currency. The correlation might become negative mostly because of events that influence the EUR currency. Building your trading strategy on this correlation is a very risky business.

    In the bottom line, Crude Oil is a very speculative asset and it is highly influenced by news releases and emotions of investors. There are so many fundamental factors to take into consideration while trading which affects the price of crude oil, and this is the reason that technical analysis might not always provide a trader with good results and accurate signals. The best approach to trade this interesting commodity is to follow the major trend using standard technical trading tools, and to be updated of as much as you can on macro economic information.
     
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