As the Middle East conflict escalates, one factor influencing the dollar’s movement is becoming increasingly prominent: that is, the price of oil.
In just one week, energy prices soared to record highs due to the potential of the US and Israel launching attacks on Iran, upending the global inflation and economic growth outlook. The US was not spared either, with treasury bond prices continuing to fall. However, the US dollar has been on the rise. Traders and strategists say the dollar’s appreciation is due to the US being the world’s largest oil producer and the dollar’s role as the common currency for global crude oil trade.
Since the US and Israel launched air strikes against Iran on February 28, the Bloomberg Dollar Index has risen by nearly 1%. The US dollar has appreciated against all major currencies except the Canadian dollar and the Australian dollar, which are also closely related to global energy prices. Meanwhile, Brent crude futures have risen by about 25%. As a result, the indicator measuring the short-term correlation between oil prices and the US dollar has turned significantly positive in March this year.
“Markets quickly realized that only a few trading strategies were effective,” said Nathan Tuft, senior portfolio manager at Manulife Investment Management. “Those were oil and the US dollar.”
Neil Sutherland, portfolio manager at Schroders Investment Management, said: “The rise in oil prices has fundamentally improved the US trade terms and increased global demand for the US dollar for energy transactions. At the same time, compared with most G10 countries, the US is structurally more resilient to energy shocks, so the relative growth expectations are shifting in favor of the US.”
Nicholas Wall, the global head of foreign exchange strategy at JPMorgan Asset Management, said that before the war broke out, the US dollar and oil prices were usually negatively correlated, with the dollar falling when oil prices rose. However, since February 28, oil prices and the dollar have risen in tandem, prompting some to refer to the dollar as the “petrodollar”.
Technical analysis:
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Gold: Yesterday, our plugin’s blue zone alert suggested buying after a pullback to that area following a break above 5215. Subsequently, the price completed the pullback and rose by over 50 dollars. For today, we recommend keeping an eye on the consolidation and range-bound movement after the price stabilizes above 5200, waiting for a directional breakout. For specific levels, please consult the plugin.
(Gold 15-minute chart)
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Nasdaq: The price was basically range-bound yesterday without a clear direction. After a previous surge of 800 points, the momentum has temporarily slowed down. Today, pay attention to whether the price can break below 24,800 and then regain the impetus for a rebound. For detailed positions, please consult the plugin.
(NASDAQ 15-minute chart)
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Crude oil: The price has gradually stabilized recently. For today, it is recommended to wait for the price to recover above 89 before considering new long signals; or wait for the price to retest the 70-75 range and then look for new long signals to try. For detailed positions, please consult the plugin.
(Crude Oil 15-Minute Chart)
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Today’s key financial data and events to focus on:
20:30 US February Unadjusted CPI Year-on-Year Rate
