• 2 hours The Silver Plunge Continues
  • 18 hours 7 COVID Vaccine Stocks To Plan Upside Moves
  • 1 day Rhodium Climbs Reaches Record Highs
  • 2 days Tesla Tumbles After Battery Day Fails To Impress
  • 2 days Three Energy ETFs To Watch This Decade
  • 3 days What To Do With $2 Trillion In Suspicious Bank Transactions?
  • 4 days How The Stock Market Predicts Electoral Victory
  • 4 days Tesla's "Battery Day" Could Deal A Blow To Cobalt Miners
  • 5 days New TikTok Deal Hopes To Bypass National Security Concerns
  • 5 days Where Will Gold Go From Here?
  • 6 days COVID-19 Is Fueling A Pastic Waste Crisis
  • 6 days Gold Output Set To Decline
  • 7 days Uber And Lyft Look To Go Electric
  • 8 days COVID-19 Is Crushing Palladium Demand
  • 9 days This ‘Once-Boring’ Tech Company Is Now Super Hot
  • 10 days Will Air-Based Protein Be Our Future Food?
  • 10 days Google Pledges To Go Carbon-Free By 2030
  • 11 days A New Twist In The TikTok Saga
  • 11 days Gold Inches Closer To $2,000
  • 12 days Delivery Drones Are Coming Sooner Than You Think
What's Behind The Global EV Sales Slowdown?

What's Behind The Global EV Sales Slowdown?

An economic slowdown in many…

Another Retail Giant Bites The Dust

Another Retail Giant Bites The Dust

Forever 21 filed for Chapter…

Is The Bull Market On Its Last Legs?

Is The Bull Market On Its Last Legs?

This aging bull market may…

Ashraf Laidi

Ashraf Laidi

AshrafLaidi.com

Ashraf Laidi is the author of "Currency Trading and Intermarket Analysis: How to Profit from the Shifting Currents in Global Markets" - Wiley Trading.

Contact Author

  1. Home
  2. Markets
  3. Other

The Euro-Oil Relationship

Act Exp Prev GMT
Euro Flag Eurozone CPI (JUL) (y/y) [P]
0.2% 0.2% 0.2% Jul 31 9:00
Euro Flag Eurozone CPI - Core (JUL) (y/y) [P]
0.9% 0.8% 0.8% Jul 31 9:00
American Flag GDP (Annualized) (2Q) [P]
2.3% 2.5% 0.6% Jul 30 12:30
American Flag GDP Price Index (2Q) [P]
2.1% 1.5% 0.1% Jul 30 12:30

The relationship between oil prices and the euro remains unambiguously positively correlated, especially as the renewed decline in energy reflects a secular bear market in commodities, accompanied by a persistent bull in the US dollar. So does another 5% decline in oil suggests sub-$1.05 in EURUSD?

 

Eurozone CPI

If oil resumes falling, say, after Iranian oil hits the market and China's slowdown take a turn to the worse (or fails to reverse), then how can the euro survive further damage? There are several ways, mainly via the US:

i) Prolonged oil declines will stand in the way of a Fed hike & end up capping USD gains due to renewed CPI weakness.

ii) The extent of above depends on which the US starts to import deflation via strong USD & from a weakening China/Europe.

iii) The extent of the above also depends on the reaction from equities, fretting about deflation & falling capex. The contribution of non-residential investment to Q2 GDP was -0.07%, the first negative contribution since Q3 2012.

Note the chart reveals that both oil and the euro bottomed in early 2009, well before Eurozone inflation, which was largely due to the peak in the USD, coinciding with the bottom in equities. This year, euro bulls require further improvement in inflation expectations, alongside a scaling down in Fed hike expectations.

Is that all? Not really. FX traders will want to remember that the bulk of a currency's change occur ahead of shifting policy cycles and not after.

 

Back to homepage

Leave a comment

Leave a comment