How the crude oil market affects foreign exchange transactions

What is Forex or Foreign Exchange: It is the world's largest financial marekt, with daily trading volume exceeding 1.50 trillion dollars. Unlike other financial marekts,foreign exchange marketThere is no physical location, no exchange center. Currency exchanges for institutions and individuals are handled through the electronic network of banks.

How to predict: Use existing data and factors to predict current and future market trends. Analysis relies on technical and fundamental statistics to predict the direction of the economy, the stock market.

If you don't buy and sell crude oil, why should you worry about the price of crude oil? If you trade currencies, there is a good reason. Many very important currency pairs rise and fall with the price of crude oil. The price of crude oil is a leading indicator of the world economy within a decade, and experts predict that it will not change at any time. The relationship between crude oil prices and the economies of many countries depends on a few simple factors:

Countries with abundant supplies of crude oil benefit from high oil prices.

Countries that rely on imports to meet their energy needs benefit from falling oil prices and lose money when they rise.

When a country's economy is strong, its currency is also strong in the foreign exchange market.

When a country's economy is in decline, its currency loses value in exchange rates.

Experts watching the crude oil market are divided about the leadership of crude oil prices and how long. A short year ago, most experts agreed that 40 dollars a barrel was the upper limit for crude oil prices. At the beginning of the year, crude oil had broken through that point and was selling at 42.5 dollars a barrel. The unpredictability of weather, world policies and real demand capacity printed the largest price change in the impressions. At one point, crude oil prices broke through $a barrel, up more than 65% from the beginning of the year. Prices fell in the end of the year, but were still 45% higher than at the beginning of the year. The year after, prices began to rise again, and many traders believe we will not see a trend reversal in the coming years. A conservative forecast price is 80 dollars a barrel. A more aggressive one says it will reach 100 dollars.

The rise and fall in the price of crude oil over the past year - 2005 - is a good example of what can happen to the price and supply factors of crude oil. Remember that too high oil prices in basic economics courses reduce consumer consumption. This is true for industrial countries that rely on oil as their main raw material. The price of all commodities produced is related to the price of crude oil. If the price of crude oil rises, so will the production and supply prices of most consumer goods. In addition, individual consumer payments will also rise as they will pay more for heating their cars and houses. The net impact on the national economy is downward until the rebound point is triggered before the upward trend resumes.

What does this mean for the currency exchange market?

In the currency market, exchange rates are often predicted based on the current state of a country's economy. If the economy is solid and rising, their currency exchange rate will reflect at a higher value. If the economy is slow, their currency will also fall against most other currencies. Knowing this, make the following judgment:

The value of the currencies of countries that produce and export oil will rise.

Countries that import most of their oil and depend on exporting it want to lose value.

Most of the profitable deals will involve oil exporting countries vs. oil dependent countries.

According to the above three points of view, experts are concerned about CADJPY pair, and this is the reason.

Canada has risen to become the world's leading oil producer in recent years and recently became the ninth largest oil exporter. Since 2000, Canada has become the largest oil supplier to the United States and has attracted the attention of the Chinese market. It is predicted that China's oil import demand will double by 2010 and match that of the United States by 2030. Recently, Canada was defined as China's largest oil exporter. This makes the Canadian dollar very high in the trade.

Japan, on the other hand, imports 99% of its oil. Their dependence on oil imports makes their economy more sensitive to fluctuations in the price of crude oil. If oil prices continue to rise, the price of Japanese exports will be forced to rise, reducing their position in world markets. Over the past few years, the value of the yen has been closely related to the rise and fall of oil prices.

If the economy and history level off, oil prices will not continue to rise. Eventually, consumers will bear the hardship and start to reduce their demand for oil and gas. When this happens, the decline in oil will level off, or begin to fall beyond the 40 dollar level, which experts predict will not be touched again.

As you can see, many factors influence the Forex game. Leave the guesses to the experts unless you are trading Forex as a hobby and don't have a lot of money to invest.