Since December 31st, the U.S. Dollar (DXM6) has declined more than 6% and, as a result, the Euro (6EM6) has experienced a greater than 5% rise. The relationship between the two is considerable because the Euro makes up a significant portion of the Dollar Index. When it comes to Metals and Oil, the relationship is not always as strong, but as shown by the Table below, there has been a significant negative correlation between the Dollar Index and Gold (GCM6), Silver (SIN6) and Copper (HGN6), to a lesser extent, since the end of the Year. That, accompanied by the rally in Crude Oil Prices (CLM6), is at least in part due to the fall of the Dollar.
When trading any Stock, ETF or Futures Contract, we are always looking for clues to anticipate the next move. This enables us to develop the appropriate trading strategy. While the Dollar is trading at its low for the last year of trading, as recently as 2014 it was trading at the 80.00 level. In comparison, the Euro traded as high as almost 1.40 in 2014. At that time, Gold traded to a high of almost $1400 and Crude Oil traded more than $100 a barrel. Typically, a weaker Dollar means higher Commodity prices, particularly for those commodities which are so prevalently traded on a World level like Gold and Crude Oil.
From that perspective, prices of Oil, Gold and Silver might be low, however, the relationship is not set in stone and there are a multiple of other factors which may affect the prices of these commodities. Crude Oil is obviously the most affected by extraneous factors not related to the price of the U.S. Dollar. Supply and demand are certainly the most overriding influences in the movement of Crude Oil Prices. That said, as a commodity, it is frequently affected by large amounts of speculative capital which flow into and out of the market. The recent dive in Oil Prices and its partial recovery is as much a result of supply and demand factors as the rotation of money in the market. For those that are able to locate this type of rotation of assets, as proved clear in the decline and revival of the Stock Market, trading an underlying contract is much easier.
If you want to establish a position in Options Contracts in order to build a position for a longer term horizon, evaluating the Implied Volatility Skew of a particular Options Contract can provide for an inherent statistical advantage in your trading. If you are not fully aware of the leverage and possibilities that Options Trading can provide, our Options Guide can be very helpful. The overall goal is to develop an Options Trading Strategy which enables you to create a strategy in a Stock, ETF or Futures Contract which meets your risk reward requirements. At Options Strategy Network we provide individuals and corporations with the tools necessary to understand the analysis which is needed to help meet their trading objectives. Contact Us to discuss how we can structure a plan to improve your success Trading Options. Thirty years of experience enables us to help you make the analytical changes necessary for more profitable trading.
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