As Oil Goes, So Goes the Euro / Dollar

By Sean Hyman

Today, I couldn’t help but notice that oil is around $59.60! The bottom was put in at around $33. So we’ve almost doubled off of the lows.

Why do I mention oil? Because oil and the euro tend to travel in the same direction (over time). This also helps to influence the dollar downward. Check out the chart below.

As goes Oil, so goes the Euro!

(Click to enlarge)

So in light of the U.S. dollar index breaking its uptrend line and falling below its 200 SMA…and the EUR/USD coming back up above its 200 SMA for the first time in a long time…and oil hitting “new highs”…I’d say it is a higher probability if someone is a buyer of the euro vs. a short seller of it in light of all of this.

The Dollar Takes it on the Chin once again!

(Click to enlarge)

If your analysis agrees with that too, then look for buy signals in whatever time frame that you trade from. We’re likely re-entering the era of a falling dollar once again. So even if you’re a short term trader, you want to keep that in the back of your mind and trade against the dollar. The best way to do this initially is through the euro (EUR/USD) since that's where the next biggest pool of liquidity is for investors.

This is why they call the euro the “anti-dollar”. There’s no currency that has a higher inverse correlation to the dollar than the euro. Therefore, if you get bearish on the dollar, you’re automatically bullish on the euro.

Get ready for many currencies to start to “gang up” on the dollar but especially the “anti-dollar” euro.

Incidentally, if you want to partially shield yourself from the increases in rising oil/gas prices, then consider owning the euro.

Everyone knows that once we come out of the recession (and we will)...and the global economy starts hitting on all cylinders once again, that oil and gas prices will head much, much higher.

You know if oil has almost doubled while we’re still in a global recession, that it will really increase once the major countries of the world are “out of the woods” and back into “growth mode” once again.

Just the fact that oil has sustained these levels that are almost double its recent lows tells me that we’re on the “back side” of the recession and about to work our way out of it in the coming months.

Full Disclosure: Sean is long the EUR/USD

Original article

Comments

[kelm:]

I think we will see substantial dollar weakness going forward and indeed, quite possibly a currency crisis. I'd look for the Fed to announce a substantial increase in their QE strategy followed by the bind market and dollar selling off hard on the news. I agree that the Euro, due to liquidity only, will benefit as will commodities.

May 15 10:24 AM

[Old Trader:]

"Because oil and the euro tend to travel in the same direction (over time). This also helps to influence the dollar downward. Check out the chart below."

Perhaps I'm misunderstanding the author, or otherwise missing something, but I think the author has put the cart ahead of the horse, meaning that the relative value of the dollar effects the quoted price of oil; not the other way around.

May 15 11:20 AM

[a.shzad:]

another way to say the same would be when dollar depreciates other currencies and commodities tend to appreciate especially oil and euro.

May 16 01:25 AM

[manuel:]

sorry but if people around the globe have to pay more dollars per barrel they have to buy more dollars so the dollar should appreciate if the price per barrel rises? Can anyone tell me where I am wrong?

Jun 12 10:52 AM