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Oil Prices Drop and US Dollar Rallies against Euro - What's Next?
Tuesday, 23 September 2008 16:32:26 GMT
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The November NYMEX Crude Oil contract has fallen $2.70, while the US dollar has staged a short-term comeback against the Euro and Japanese Yen —underlining the currency’s strong relationship to oil and other commodity prices. In fact, the year-long correlation between the Euro/US Dollar exchange rate and crude oil prices currently trades at its highest since the inception of the euro. As such, we forecast that US dollar outlook will depend on Crude oil and vice-versa.
Yesterday we forecast that the US dollar could stage a recovery through medium-term forex trade, as an overshoot of extremely dollar-bearish sentiment is likely to produce a worthwhile rebound. Such a forecast would suggest that we could likewise see lower oil prices through the medium term, and this is consistent with our technical outlook for crude oil itself.
Written by David Rodríguez, Quantitative Analyst for DailyFX.com
To contact the author of this report, e-mail drodriguez@dailyfx.com
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