Crude is going up or dollar going down.

[Murray Ruggiero]

Crude is setting record prices in terms of US dollar but not in terms of other currencies or gold. US dollar policy is the main reason for energy inflation/deflation. This relationship does not work all the time because when the dollar is in a steady range other factors effect crude more. Even with that said this relationship is very powerful and almost tradable.

We developed a simple intermarket divergence model based on the negative relationship between these markets. It has average over 9,000 a year with a first trade in 1986.

I have included both the results of this simple system and a chart of how the current increase in crude prices is all dollar based inflation.

These results are produced using TradersStudio. For more information on TradersStudio please visit TradersStudio.com

 

[Gyles]

I am surprised, to be the first one to post an answer here, after all Oil is a hot topic now a days with the Middle East and the US at loggerheads.

Moreover, if the unprecedented rise in oil prices needs to be checked, the US should seriously consider raising the interest rates and strengthen the dollar. As, even a 50 basis point increase would drop the oil price by 10.00 a barrel for the dollar will begin to rally.

 

[TraderSystem]

Well, yes it is interesting and a hot topic. Was searching for more information and chanced on this made by Murray itself in 2006:

http://www.elitetrader.com/vb/showthread.php?threadid=72664

 

[Gyles]

An interesting analysis done by you, Mr. Murray, can you also do a study using the Euro and Gold using a positive relationship? Moreover, can you please explain the term “Inter-market Divergence”?

 

[Murray Ruggiero]

I covered the concept of intermarket divergence using crude in the thread below. I will do some other examples for you and post soon.

http://www.elitetrader.com/vb/showt...&highlight=Intermarket+Divergence#post1129055

 

[TraderSystem]

Yes, indeed the Oil prices are going up day by day and with it everything is going up. In fact, a lot of serious talks going around to look into other other renewable sources of fuel like natural gas, hydro power, wind power, electricity (like the electric car, hybrid car, solar house).

As 2007 is closing, just wanted to see the impact of crude oil on US economy, saw the following links:

http://www.farmdoc.uiuc.edu/manage/newsletters/fefo07_11/fefo07_11.html
http://users.pandora.be/simplex/Glodym/oilPriceScen.htm
http://www.seekingalpha.com/article/25280-how-crude-oil-inventories-impact-the-market
http://www.wtrg.com/prices.htm
http://www.card.iastate.edu/about/news/show_release.aspx?id=51
http://www.neb.gc.ca/clf-nsi/rnrgynfmtn/prcng/crdlndptrlmprdcts/crrntmrktcndtn-eng.html
http://money.cnn.com/news/newsfeeds/articles/newstex/AFX-0013-21511585.htm
http://www.newsday.com/business/ny-bzleft1206,0,1094323.story

Links of Environmental impact:

http://www.dailygalaxy.com/my_weblog/2007/11/say-good-bye-to.html
http://www.guardian.co.uk/environment/2007/oct/30/energy.oilandpetrol

Videos links:

http://www.veoh.com/videos/v310534qCJqHxHt
http://www.youtube.com/watch?v=VyB169cOhN4

Link showing the impact of falling dollar aginst other currencies and oil:

http://www.thehindubusinessline.com/2007/05/23/stories/2007052306801200.htm

What do you have to say?

 

[agtrader777]

It is the dollar devaluation that is causing the oil and commodity prices to rise. THe U.S. has been a powerful economy so almost everything is priced in dollars. Even, shopping carts have dollar as default currency.

Now, it seems the U.S. is slipping, so trends are in the reverse.