US dollar and crude oil

The US dollar and crude oil markets are highly correlated, in a negative fashion. What I mean by this is that the stronger the US dollar gets, quite often that can put a bit of bearish pressure on crude oil, because it takes less of those US dollars to buy a barrel. Beyond that, you can also have the US dollar strengthening because of geopolitical concerns when it comes to trade, which of course has people looking for the safety of the treasury markets and perhaps thinking that global demand for energy may drop.

On the attached chart, I have three markets represented. The candle stick chart is the crude oil market on the weekly timeframe, while the orange line chart is the Euro against the US dollar. This is one of the easiest ways to tell what the US dollar is doing overall, as it is roughly 60% of the US Dollar Index. Beyond that, I have the blue line on the chart that represents the USD/CAD pair, with of course the Canadian dollar being a proxy for crude oil as it is so important when it comes to exporting oil to the rest of the world.

As you can see, oil prices have been rising over the last several months, while the EUR/USD pair has done the same. Quite frankly, you should keep in mind that there are a lot of European Union issues going on at the same time, so the fact that the EUR/USD pair is rallying in and of itself is rather impressive. Going throughout history, you can see several times where the USD/CAD pair has gone up and down with the oil market, although this has diverged a bit from time to time. This is because so many people will need to buy Canadian dollars to purchase crude oil from that country. Obviously, the opposite is true as well.

While not a 100% predictor of what goes on in the oil markets, it can give you an idea as to whether oil is going to rise or fall with the EUR/USD pair being positively correlated, and the USD/CAD pair being negatively correlated.

CFDs US dollar and crude oil