The Strong US Dollar May Mean Depressed Oil Prices for Quite Sometime

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By Jacob Maslow

Dollar balanced against oilGenerally speaking, when the US dollar is strong, the price of commodities tends to be weak. Unless we’re talking about gold and some other commodities, generally, the US dollar moves in inverse direction to the price of commodities. If the price of commodities is high, the US dollar tends to be low. If the price of the dollar tends to be strong, the price of commodities tends to be weak.
This is not always the case. In the year 2010 to 2011, the price of oil, gold, and the US dollar moved in the same direction. They were all moving up. However, right after the great financial crash of 2008, this has begun to normalize.

The normal movement is when the US dollar is strong, the price of oil decreases. The reason for this is that when the US dollar is attractive, it influences the attractiveness of oil to markets that don’t use the US dollar. In short, the US dollar is used as a proxy investment.

So it appears from 2013 onward that this general rule has come back. It’s not always the case, but it looks like it has come back.

Why this is a big deal? Well, if you are a forex trader, it may be a good idea to look at the price trends of oil and base your forex trades on that. In the world of equities and commodities trading, we could all use as many external figures and benchmarks as possible that would allow us to make educated guesses regarding the direction of certain currency pairs.

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