Does The Oil Market Affect Forex Trading?

Does The Oil Market Affect Forex TradingForeign exchange trading is the largest financial market in the world. An average of $3 trillion is traded every day. The distinguishing factor of this market is the lack of a central exchange. The market spans across many networked banks, and other entities that deal with the buying and selling of foreign currencies. It is almost impossible to accurately predict the movement of the values of the currencies that are traded. Numerous factors affect the values of these currencies. The oil market is another major market, and questions usually arise on whether it affects trading in Forex markets.

 

You may wonder why Forex traders get concerned about activities in the oil market, when they do not trade Oil. The fluctuations in the price of a barrel of oil have definite impacts on the strength of every currency trading pair. Oil is a vital commodity for all economies, and its price indicates the state of the world economy. This is unlikely to change, since oil will remain one of the most sought after commodities in the world. The Oil market affects the currency trading market in many ways. It essentially reflects the strength or weakness of a currency.

 

• Oil producing countries benefit from oil, since their currencies become stronger, with higher oil prices.

 

• The currencies of countries that import oil, trade at lower levels, when the price of oil rises.

 

• When a country’s economy is performing well, the currency of the country is also strong in the foreign exchange market.

 

• A non-performing economy weakens the strength of the country’s currency in the Forex markets.

 

The direction of the oil prices still baffles experts today. A general trend, however, is that oil prices are on a gradual increase. Experts are unsure of the nature of oil prices in the future. This casts a cloud on the direction of trade in the Forex market. When the prices of oil broke the $70 per barrel in the year 2004, the whole world was stunned. This was a considerable 64% increase from how it was selling at the beginning of the year. The price later fell, but at the end of the year, it was still selling at 44% more than it did, at the beginning of the year.

 

The fluctuations of the crude oil prices appear to be in favor of oil producing countries. This is because prices rise and fall. One thing is certain though; they never fall to the levels they were before. Thus, it is safe to say that the prices of crude oil will continue to rise, indefinitely, until the world finds another affordable source of energy, or the crude oil in the world runs out.

 

The price of oil has a definite effect on a currency’s strength. This depends on whether the country is an importer, or exporter of crude oil. It is projected that in coming years, oil exporters will have stronger currencies, due to the ever increasing price of oil. To get more information about Forex trading, visit www.lucrorfx.com

 

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