Article Categories
» Arts & Entertainment
» Automotive
» Business
» Careers & Jobs
» Education & Reference
» Finance
» Food & Drink
» Health & Fitness
» Home & Family
» Internet & Online Businesses
» Miscellaneous
» Self Improvement
» Shopping
» Society & News
» Sports & Recreation
» Technology
» Travel & Leisure
» Writing & Speaking

  Listed Article

  Category: Articles » Finance » Article
 

Play Nostradamus on Forex Swings with Oil Trends




By Joseph R. Plazo

Now why should you worry about the price of oil if you're not buying and selling oil?

If you're neck deep into forex, there's one good reason. Many of the most important currency trading pairs rise and fall on the price of a barrel of oil. The price of oil has been a leading indicator of the world economy for decades, and experts predict that that won't be changing any time soon. The connection between the price of oil and the economy of many countries is based on a couple of simple facts:

1. Nations with healthy supplies of crude oil benefit economy-wise from higher oil prices.

2. States who depend on imports for their energy needs benefit from lower oil prices and lose when oil prices rise.

3. As the economy of a country is strong, its currency is also strong in the forex market.

4. As the economy in a country takes a downturn, its currency loses value in the currency exchange rate.

The ever shifting oil prices of the past year – 2005 – are a good example of what can happen when factors affect the price and supply of oil. Remember from basic economy courses that higher oil prices act to put the brakes on consumer spending. This follows as long as the major source of oil for industrialized countries is petroleum based. The price of all goods produced hinges on the price of a barrel of oil. As the oil prices rise, so does production and supply prices for most consumer goods. In addition, the expenses of individual consumers rise as they pay more to fuel their automobiles and heat their homes. The net result is a downward swing in the economy of the country until it hits a rallying point that starts it back on an upward trend.


Authorities who survey the oil market are split on which way oil prices are headed, and just how far. A little over a year ago, most pundits agreed that $40 a barrel was the upper limit for a barrel of crude oil. At the year's beginning, oil had already broken that point, and was selling at $42.50 a barrel. The vagaries of the weather, world politics and actual capacity to meet demands have fueled one of the most volatile pricing years in recent memory. At one point, the price of crude broke $70 a barrel, an increase of 65% over the beginning of the year. And while prices dropped for a short period, at the end of the year, they were still 45% higher than at the beginning of the year. Since the turn of the year, prices have begun their climb again, and the majority of traders believe that we won't see a reversal of that trend in the near future. The conservative predict a price of $80 per barrel. The more aggressive are calling it at $100.

What does this imply for the currency trading market?

From economics 101, we know that in the currency market, exchange rates are predicated on the health of a country's economy. If the economy is robust and growing, the exchange rates for their currency reflect that in higher value. If the economy is faltering, the exchange rate for their currency against most other currencies also stumbles. Knowing that, the following makes sense:

1. The currency of nations that produce and export oil will rise in value.

2. The currency of nations that import most of their oil and depend on it for their exports will drop in relative value.

3. The most profitable trades will involve a country that exports oil vs. a country that depends on oil.

Based on those three points, the experts are keeping their eye on the CADJPY pairing for the most profitable trades, and here's why.

Canada had been leaping the list of the world's oil producers for years, and is currently the ninth largest exporter of oil worldwide. (gasp here) Since the millenium's turn, Canada has been the largest supplier of oil to the U.S., and has been getting considerable attention from the Chinese market. It's predicted that by 2010, China's import needs for oil will double, and match that of the U.S. by 2030. Currently, Canada is positioned to be the largest exporter of oil to China. This puts Canada's dollar in an excellent position from a trading perspective.

Japan, on the flip side, imports 99% of its oil. Their dependence on oil imports makes their economy especially sensitive to oil price fluctuations. If oil prices continue to rise, the price of Japanese exports will be forced to rise as well, weakening their position in the world market. Over the past year, there has been a close correlation with rises in oil prices and drops in the value of the yen.

If economy and history are to be regarded, the oil prices can't continue to rise indefinitely. Eventually, consumers will bite the bullet and start cutting their demand for oil and gas. When that happens, the price of oil will either stabilize, or start heading back down toward the $40 a gallon that experts predicted it would never hit.
 
 
About the Author
***
A master of manifestation to his associates, Joseph R. Plazo offers intense executive coaching so people can find jobs and build careers.
http://www.xtrememind.com
http://jobcentralasia.com
http://www.powerconsultants.net


Article Source: http://www.simplysearch4it.com/article/32400.html
 
If you wish to add the above article to your website or newsletters then please include the "Article Source: http://www.simplysearch4it.com/article/32400.html" as shown above and make it hyperlinked.



  Some other articles by Joseph R. Plazo
Jedi Mind Games for The Forex
"Your worst opponent is yourself Young Jedi" When it comes to marketing on the forex exchange, victory is a matter of the mind instead than mind atop matter. ...

Rally the Troops with Inner Fire
Many who thrive in the workplace are those bursting with drive and determination. These folks who are motivated by their ...

Nine Marching Orders to Stay the Line
Burning with motivation is not always easy no matter what you are trying to accomplish. For those that are trying to get ...

Forex – A Snappy Way to Make Serious Bucks
$1.3 Trillion; Safe estimates peg it as the amount of currency that's traded on the Forex every single day. ...

Savvy Tactics to Minimize whopping Forex Losses
Forex trading has one goal: to make money. Unfortunately, like any speculative venture, there is a potential for loosing money. The same holds true with the stock ...

Five Monster Tactics for Demonic Viral Marketing.
Does marketing your start-up company petrify your checkbook? Tri-media advertising does wonders for corporate brand building but it's not the only way to spread the good word. With non ...

  
  Recent Articles
Tenants With Poor Credit Even Enjoys Loan
by Turk Malloy

The UK Consumer's Guide to Shopping for Car Insurance Online
by Mary Simone

Are You Throwing Your Money Away?
by John Cranley

Easy personal loan to finance your desire!
by frank howard

Bad credit consumers can still find sources of financial assistance
by Martin McAllister

Setting up a Merchant Account
by John Tillman

Individual Voluntary Arrangement: How Does It Work?
by Martin McAllister

Stop Foreclosure - We buy houses
by Ron victor

Tax foreclosures property investment could be a nightmare investment
by mike

Spotting tax foreclosure property in USA
by mike

Making money online is virualy free
by Phill Evans

Online Criminal Background Checks: Importance & Ease
by Asel Retrac

Can't connect to database