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Oil prices are rising and the US dollar is falling, but is this the natural relationship between these two assets? Taking a look back at the two prominent oil shocks of the past four decades andwe see that this is not necessarily the case.

Initially Dollar Bullish, Eventually Dollar Bearish. This effectively shut down exports to the USWestern Europe and Japan.

As a result, prices rose significantly to account for the sharp reduction in supply. At the same time, Saudi ArabiaIranIraqAbu DhabiKuwaitand Qatar unilaterally raised prices by 17 percent and announced production cuts after negotiations with major oil companies. At that time, the Federal Reserve was combating inflationary pressures by raising interest rates.

The jump in crude exacerbated the need for further rate hikes, forcing the central bank to bring the Fed Funds target rate from 7.

The focus on inflation was initially dollar bullish but once the rate hikes started to have a serious impact on US growth, the trend turned dollar bearish. Between the third quarter of and the first quarter ofGDP growth contracted five out of the seven quarters and in response to the deterioration in growth, the US dollar erased all of its gains.

OPEC raised prices by Shortly thereafter, OEC raised prices a second time by 15 percent, the US halted imports from Iranwhile KuwaitIran and Libya cut production. The price action of the US dollar during that time was very similar to the price action of the greenback in ; it first rallied and then sold off. At that time, the Federal Reserve was also hiking interest rates to combat inflationary pressures and the oil price spike exacerbated their degree of rate hikes.

Between January and Decemberrates where taken from 10 percent to 14 percent and by March ofthe Fed Funds rate hit a high of 20 percent. Quarterly GDP growth dropped 7. Between June and October ofoil prices also jumped percent as a result of the first Gulf War. Interestingly enough, the US dollar behaved very differently for two reasons.

Unlike the oil crisis of orthe Federal Reserve started cutting interest rates before the spike and continued to reduce rates throughout and into and the dollar was already in a downtrend due to the loosening of monetary policy.

The weakness continued as growth slowed with Super easy forex remaining stagnant in third quarter ofand then falling 3 and 2 percent respectively over the next two quarters. The characteristics surrounding the latest oil rise is more similar to the oil spike in than the shocks of and Therefore it is easy to understand why the US dollar has continued to weaken despite growing inflationary pressures. The Federal Reserve has been consistently cutting interest and these rate cuts have played a far more dominant td online stock trading in the price action of the dollar than the rise in oil.

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Back in the s, the Fed took a break from cutting rates like they are expected to do in June, but how does comodo make money quickly resurrected their rate cuts as the economy slowed.

Of course, interest rates were much higher then than they are now, but if growth does not pick up, more rate cuts may be right around the corner. Friday, May 23, The Forex and Oil Prices. Persistent Dollar Weakness Between June and October ofoil prices also jumped percent as a result of the first Gulf War.

Posted by Incoherent Ramblings at Forex Trading - An Introduction. The Foreign Exchange This short introduction explains the basics of trading Forex online, a brief explanation of the markets and the major benefits of trading Forex online.

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There are also two scenarios describing the implications of trading in a bear as well as a bull market to better acquaint you with some of the risks and opportunities of the largest and most liquid market in the world. Overview Foreign exchange, Forex or just FX are all terms used to describe the trading of the world's many currencies. The Forex market is the largest market in the world, with trades amounting to more than USD 3 trillion every day.

Most Forex trading is speculative, with only a low woolworths marrickville opening hours australia day of market activity representing governments' and companies' fundamental currency conversion needs.

Trading takes place directly between the two counterparts necessary to make a trade, whether over the telephone or on electronic networks all over the world. The main centres for trading are Sydney, Tokyo, London, Frankfurt and New York. This worldwide distribution of trading centres means that the Forex market is a hour market.

Trading Forex A currency trade is the simultaneous buying of one currency and selling of another one. The most important Forex market is the spot market as it has the largest volume.

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In practice this means two banking days. Forward Outrights For forward outrights, settlement on the value date selected in the trade means that even though the trade itself is carried out immediately, there is a small interest rate calculation left.

The interest rate differential doesn't usually affect trade considerations unless you plan on holding a position with a large differential for a long period of time. The interest rate differential varies according to the cross you are trading. On the USDCHF, for example, the interest rate differential is quite small, whereas the differential on NOKJPY is large. This is because if you trade e. So, if you borrow money in Japan, to finance the trade and buying NOK, you have a positive interest rate differential.

This differential has to be calculated and added to your account. You can have both a positive and a negative interest rate differential, so it may work for or against you when you make a trade.

Trading on Margin Trading on margin means that you can buy and sell assets that represent more value than the capital in your account. Forex trading is usually conducted with relatively small margin deposits.

This is useful since it permits investors to exploit currency exchange rate fluctuations which tend to be very small. A margin of 1. Using this much leverage enables you to make profits very quickly, but there is also a greater risk of incurring large losses and even being completely wiped out. Therefore, it is inadvisable to maximise your leveraging as the risks can be very high.

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