Are the Canadian Dollar and Crude Oil Prices Setting Up for a Reversal? What are your thoughts? Bear in mind that a reversal is still a very long way off.
The Dollar is higher by almost 15% against the Euro, as of yesterday. This means that the US Dollar is going to strengthen in coming months. If I were speculating about what to do in this regard, I would be looking at developing a strategy that incorporates currency swaps. If the Dollar strengthens, then you can buy more Euro, and if it weakens, then you can sell more American Dollars, as this is now only a one way trade.
An investor that has been holding stocks that depend on crude oil, such as Altria, Exxon, and Enron, has seen his market capitalization drop by close to fifty percent, when you factor in the amount of stock that has been forced off the market by a boycott of crude oil, and the lower oil prices. This is not a great sign for the future of these stocks, as this suggests that the value of the Dollar is stronger than in the past.
A trend that I am watching closely, is what happens when the Dollar strengthens again. The question to ask yourself is whether this will be seen as a good or bad news. The upside to this is that we will get a bit of additional buying pressure from abroad, and that may lead to some renewed economic growth in the US, which we have not seen for years.
Another upside is that the momentum will continue to be built up in terms of the US economic recovery, which has been the central theme of our economy for the last couple of years. A little more strength for the Dollar is certainly good news.
At the same time, it is important to keep in mind that the US Dollar will be strong until economic growth picks up, and the economic recovery takes hold. This is why it is not wise to look for any reversion in the market, however this does not mean that you should just sit tight. Buy in where there is buying.
To get an idea about what the price of crude oil is doing, it is important to know about the inventory position of a company that has been involved in oil exploration and production. At the end of last year, with many companies in financial distress, some even on the verge of bankruptcy, one oil explorer found that it could make a good profit in less than two years, and it had just one more big order to go before it could be off the market.
In other words, there are many companies that see profits, and others that are at risk of bankruptcy. It will be interesting to see what will happen when the oil price stabilizes. We can speculate that we could see a major reversion in the Canadian Dollar and crude oil prices.
As far as the US is concerned, many observers see a major downturn as the US economy starts to slow down. Indeed, if the US economy starts to slow down, and the Federal Reserve raises interest rates for the first time in nine years, then we will see another reversal in the market.
I hope that I have given you some sound advice in terms of what to expect from the upcoming month, and what could occur. Indeed, we have seen a major reversal in the Canadian Dollar and crude oil prices since January, and the markets are beginning to understand this. And if you look back a few months, this is exactly what happened, and it started a process that is going to set the market up for a turnaround. some very strong trends for the year.