Kit Juckes, Research Analyst at Societe Generale, suggests that the (falling) price of oil is driving FX (and most other) markets as brent has now corrected almost exactly 38.2% of the bounce from the low early last year (just above $26/bbl) to this year’s peak of $56.5.
“The challenge is well understood - OPEC-led output restraint and the current price levels have not been sufficient to reduce global oil supply enough to make a dent into inventory levels. That’s mostly an issue of lags, and our commodity team expects Brent to end the year at USD 60/bbl, but still, the FX market will be watching the spot price of oil today and the USD/RUB rate, testing the 200-day moving average which is just below 60.”
“The dollar’s trade-weighted value hasn’t correlated as well with oil prices in the last 9 months as it did in the past. Politics has trumped other issues. However, the dollar is likely to get a lift if we do break though the current levels, dragging USD/CAD higher. It should get some support against the rest of the G10 currencies too, but I don’t think this move is likely to go very far.”
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