Simply put, the prices of commodities affect foreign exchange rates (some more than others). In addition, the more important a specific commodity is to a nation’s economy or the global economy, the more indicative that commodity is to Forex. For example, the price of crude oil, gold and silver are key commodities not only for every nation but also for the global economy. This article will discuss crude oil and its impact on Forex this July 2012.
Forex News: Crude Oil Prices Soar
Escalating tension in Iran, mainly due to nuclear related conflicts have destabilized the supply of crude oil once again (at least in perception it has). This signaled a new set of price increase as nations vied to increase their crude oil inventories. Therefore, nations with sufficient inventories or an oversupply can cash in on the dilemma. In the long term, commodities related to alternative sources of energy and their host nations should also profit.
Forex News: Crude Oil Reverses Gains
From bullish to bearish. This is mainly due to the tensions in Iran and with just a few words (okay more than a few words) from Fed Chairman Bernanke. Traders shifted investments from crude oil to safe-haven assets. This highlights the importance of news of the day or expert opinions as indicators to Forex. Bear in mind that avoiding speculative trading and moving only when a trend appears, is still the safest play. Anyway, the point really is to catch a trend as soon as it starts not before it starts. The former means great chart/indicator reading while the former is purely speculative.
Forex News: US Inventories Report Extends Oil Gains
Supply and demand is the news of the day. Supply is volatile because of tensions in Iran and demand is high in the United Stated because it seems that their oil inventory is lower than expected. The result is the price of crude rose once again. Investors should therefore look out for US movement, in particular the currency value of the US. This is because any resulting increase in the USD will affect the world market. On one hand the price increase may fuel more US based purchase but on the other hand, the resulting currency increase may make it too burdensome for other countries to participate as buyers. Most experts agree that scenario 2 is actually more plausible than scenario 1.
Forex News: The EU Affects Everything, Even Crude Oil
The instability in Iran pushed crude oil prices to an eight week high. However, growing concerns in the Euro caused the bull to turn into a bear, and this was in the span of a single day! Experts provide several reasons, but the most tenable is that investors felt the need to shift to safe-haven assets (traders are easy to scare, of course with good reason). Investors should therefore keep one eye on the stability of specific currency pairs and another eye on the situation in Iran. This is because growing Iran escalation coupled with quieting down of the Euro may result is the bull rearing its ugly but very profitable head. Of course, the reverse is also true.