Sometimes that inverse movement occurs, and sometimes it does not. When the inverse correlation is working, there may be a trade, but when it is not, find something else to do.

Here is an 18-year monthly chart comparing the US Dollar (proxy UUP) to West Texas Intermediate Crude (proxy USO). You can see inverse correlation sometimes and not at other times.

The red line is for the US Dollar Index (USD against a trade weighted basket of currencies). The black line is the spot price of crude.

There is substantial argument today that the Dollar will fall due to all of the debt issuance associated with the economic rescue programs. There are also strong voices saying that oil will rebound to perhaps $70+ when economies improve, based on the average deep sea finding and lifting cost. That would suggest an inverse chart correlation may exist in the future, but the causation is not described as the same for each. Any future correlation may be partly coincidental and partly cause and effect.

It is not safe to assume that if one rises the other will necessarily fall. You must stay on your toes, or lose your toes, and maybe some fingers too. Remember that a big part of making money, is not losing money. Acting on false assumption about structural price relationships is one good way to lose money.

By Richard Shaw
http://www.qvmgroup.com

Richard Shaw leads the QVM team as President of QVM Group. Richard has extensive investment industry experience including serving on the board of directors of two large investment management companies, including Aberdeen Asset Management (listed London Stock Exchange) and as a charter investor and director of Lending Tree ( download short professional profile ). He provides portfolio design and management services to individual and corporate clients. He also edits the QVM investment blog. His writings are generally republished by SeekingAlpha and Reuters and are linked to sites such as Kiplinger and Yahoo Finance and other sites. He is a 1970 graduate of Dartmouth College.

Disclaimer: The above is a matter of opinion and is not intended as investment advice. Information and analysis above are derived from sources and utilizing methods believed reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Do your own due diligence.

Richard Shaw Archive

Only logged in users are allowed to post comments. Register/ Log in

The Market Oracle is a FREE Financial Markets Forecasting & Analysis web-site.
(c) 2005-2024 MarketOracle.co.uk (Market Oracle Ltd) - Market Oracle Ltd asserts copyright on all articles authored by our editorial team and all comments posted. Any and all information provided within the web-site, is for general information purposes only and Market Oracle Ltd do not warrant the accuracy, timeliness or suitability of any information provided on this site. nor is or shall be deemed to constitute, financial or any other advice or recommendation by us. and are also not meant to be investment advice or solicitation or recommendation to establish market positions. We do not give investment advice and our comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to enter into a market position either stock, option, futures contract, bonds, commodity or any other financial instrument at any time. We recommend that independent professional advice is obtained before you make any investment or trading decisions. By using this site you agree to this sites Terms of Use. From time to time we promote or endorse certain products / services that we believe are worthy of your time and attention. In return for that endorsement and only in the cases where you purchase directly though us may we be compensated by the producers of those products.