Crude Oil and Its Connection With The U.S. Dollar
NYSEARCA:USO, NYSEARCA:XLE, NYSEARCA:UCO, NYSEARCA:SCO, NYSE:COP, NYSE:CVX, NYSE:XOM Related posts: Is Crude Oil Ready For Further Growth? Crude Oil: Double Top or Just a Pause? What Impact Could A Crude Oil Breakout Have On Gold Prices? Crude Oil Breakout and Some Implications Thoughts On The Recent Crude Oil Bull Trap

oil-etfNadia Simmons: The recent months have been tough for the U.S. currency. Since July the greenback has lost 6% and dropped to a new eight-month low on Friday. Investors avoided the dollar, firstly after the Fed opted against cutting its stimulus in September and then as the budget spat in Washington pushed the country close to a default. Despite this decline, yesterday, the dollar pulled back from an eight-month low as investors awaited delayed U.S. jobs data.

Many investors think that the Fed will delay trimming its $85 billion-a-month bond-buying program until the economic impact of this month’s partial U.S. government shutdown becomes clearer. The Fed’s taper decision will ultimately be tied to the economic data. Therefore, this week all eyes will be on the crucial nonfarm payrolls report. The report was originally scheduled for release on Oct. 4, but because of the government shutdown, it will be released today. Analysts polled by Reuters expect payrolls to have increased by 180,000 in September, with the jobless rate steady at 7.3 percent. Therefore, a reading anywhere in the 160,000 to 190,000 range would probably be fairly neutral with respect to near-term U.S. dollar direction. Any signs of weakness may reinforce expectations that the Fed would hold off from scaling back its stimulus this year, pressuring the greenback. However, if it is a strong number it would suggest that the shutdown may have had only a limited impact and any strength in the jobs data could be used as an excuse to buy the dollar.

Taking the above into account, investors are probably wondering whether this report can have a positive impact on the greenback or not. When we take a look at the chart, we see that the dollar dropped to its new eight-month low in the previous week. What’s interesting, at almost the same time we saw a new October low in crude oil.

This relationship between the U.S. dollar and light crude has encouraged us to examine their connection in the short term. However, before we focus on this issue, let’s take a look at the long- and the medium-term crude oil chart to see if there’s anything on the horizon that could drive the price of light crude higher or lower in the near future. Let’s start with a look at the monthly chart of light crude (charts courtesy by http://stockcharts.com).

Crude Oil monthly price chart - WTIC

On the above chart we see that crude oil dropped below the long-term declining support/resistance line based on the September 2012 and March 2013 highs (the upper black line). However, the breakdown below this line is not confirmed at the moment. Please note that despite this downward move, crude oil still remains above the long-term declining resistance line based on the July 2008 and May 2011 highs (bold red line).

From this perspective, the picture remains bullish.

Now, let’s zoom in on our picture of the oil market and see the weekly chart.

Crude Oil weekly price chart - WTIC

Looking at the above chart, we see that the price of crude oil declined once again in the previous week and dropped below the October low. In this way, light crude slipped to a new monthly low of $100.03 and closed last week at its lowest level since June. Yesterday, we saw further deterioration and the price dropped below the psychological barrier of $ 100 and hit its new monthly low of $99.41 per barrel.

In spite of this drop, from this point of view, the situation is mixed, because light crude reached the important medium-term support.

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Related posts:

  1. Is Crude Oil Ready For Further Growth?
  2. Crude Oil: Double Top or Just a Pause?
  3. What Impact Could A Crude Oil Breakout Have On Gold Prices?
  4. Crude Oil Breakout and Some Implications
  5. Thoughts On The Recent Crude Oil Bull Trap

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