Correlation Report : EUR/USD – Oil Mar 11

Good day currency trading koalas!

With the current crisis in the middle east / Libya, oil has become a focal point for discussions and concerns due to the rising prices.

Oil being the backbone of modern industrial society is a crucial resource. Rising prices are a direct threat to economies struggling after the Financial Crisis of 2008. Being an essential resource, it has a direct impact to prices of all other resources / services derived from any modern processes requiring oil.

Oil is priced in US Dollars and hence one would be interested to see if there is any correlation between Oil and the EUR/USD. Having an additional clue to our daily trading of the EURUSD currency pair is definitely most welcomed.

Having said so, a close look on the charts above ( aligned loosely to about 3 months worth of data ) instantly shows the challenges of any attempts to determine correlations.

The first circled regions on the left suggests some correlations in terms of the ranging actions of both financial instruments. However currencies being a volatile financial instrument showed a wider range of movement. The middle circled regions however showed the major disconnect between the two. It was the time when the crisis in the Middle East and North Africa escalated. The protests against the governments of several oil producing countries. Amidst concerns regarding oil production, the price of oil shot up and went above the $100 mark. On the other hand, the EUR/USD saw little bullish action. While the last circled region to the right looked like a good correlation, anyone who is following the financial developments will know that it is merely a case of coincidence. Oil remains elevated due to the developing crisis while the Euro is going bullish due to speculations regarding a possible interest rate hike.

In conclusion, while we see occasional loose correlations between the two, the unpredictability makes any useful conclusions practically impossible for now. Oil at the moment is better off used as a clue to the general economic health.

Trade Safely.


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