Trend Analysis For The US Dollar Index and Crude Oil Market

by The Smarter Wallet on June 7, 2009

We perform a trend analysis for the US Dollar Index using’s MarketClub investment tool. See how the US Dollar Index (DX) impacts the Crude Oil market, and why inflation may be in our future.

Diversification is one of the most fundamental principles behind risk management in the world of investing. It works because asset classes don’t typically move in lockstep. When one investment moves one way, you’ll be able to find some other investment that goes in the opposite direction. Take for instance the case of the US Dollar. When the dollar was weak, not so long ago, it was a time when we saw oil prices charging ahead at ridiculously high prices.

These days, we’re seeing better prices for oil while the dollar seems to have recovered from its lows last year. Let’s see how things have turned out so far:

crude oil vs US dollar index trends
Image from Bloomberg

As you can see, there is an inverse relationship between the US Dollar and Crude Oil, and the (inverse) correlation can be explained as follows (thanks to this older US News article):

Oil is priced in dollars on the world market. By definition, when the dollar is weaker, foreign currencies are stronger. This means that people in other countries can buy more oil for the same amount of money. When oil becomes cheaper to foreigners, they’re able to buy more and as people in other countries buy more, overall demand for oil rises. This of course drives up the price in dollars, which, again, is how the price of oil is denominated on world markets. Consequently, while oil prices in the US look like they’re going up sharply in dollars, in effect, it may actually be going up by much less or staying about the same in other countries.

So now that we’ve seen these historical trends and how some markets are related, what can we expect in the future? I’d like to take a look at some market predictions being offered by stock trading experts.

Trend Analysis For The US Dollar Index and Crude Oil Market

Let’s see how the US Dollar Index is doing these days. For this, I refer to one of my favorite sources of investment education, stock market research and technical analysis: I’d like to bring up an interesting video from that focuses on trends in the US Dollar Index or DX. The video demonstrates how you can use INO’s MarketClub stock charting tool to track how the US Dollar has moved historically over a period of time, and how it will potentially move in the future.

Click on this link or the image below to watch the video.

trend analysis, US Dollar Index vs Crude Oil

Where Is The US Dollar Headed? How Stock Analysis Tools Track Trends

The Prediction: According to the video, the dollar looks like it’s headed down, which in turn will imply that crude oil (and gas prices) will be turning upwards. The question here may be “how far can the dollar fall?” As this scenario unfolds in the coming weeks and months, this sets the stage for an inflationary environment. So do you buy this analysis?

To get more information on (an investment resources site offering tools and educational materials to investors and stock traders), you can subscribe to INO’s free trend analysis tool and sign up to watch their free videos at INO TV Free. Also, to learn more about how to invest, how to trade and how to understand technical analysis, check out the other videos we have from here:

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{ 1 comment… read it below or add one }

1 Jay June 9, 2009 at 12:57 pm

The consensus seems to be higher crude oil prices and devaluation of the dollar. Although, it depends on who you ask. Good report. Here is a montage of what some other sources are saying. SO who’s right?

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