What Expensive Oil Means For Forex Traders

11 Jun.

This article presents the unique opportunity for long-term forex trading gains that is made possible by the worldwide increase in oil prices.

More and more we are seeing evidence of the effects that increasing oil prices are having on the economy and certain energy-dependent sectors such as airlines. Oil is already over $100, and it is projected to exceed $150 per barrel with common gas prices exceeding $6.00 per gallon.

If you are a savvy investor however, this presents for you an opportunity to make hefty and reliable gains.There is a simple currency trading strategy that has been used consistently and reliably for large gains by many traders, and it is really so simple if you understand basic economics you will feel dumbfounded that you did not think of it.

Here is the strategy in a nutshull: (Once you know the strategy then we can talk about why and how it works.) Track the price of oil and look for a day when there is a large jump up in the price of oil (the close is up $.30 or higher). Once this happens, enter into a sell order with the USD/CHF currency pair that will stay open for 12 hours - 3 days with a profit target of 25 pips or more.

If you understand just basic economics and the nature of national monetary systems then you should understand why this strategy is so effective, and why it works the best when you are trading the Swiss franc. As it exists today, the Swiss franc is literally the only currency that is backed by gold (though that will change once Nesara is passed in America) and so it is much more immune to fluctuations in the values of important commodities such as oil.

The United States dollar is a fiat currency and hence has no fiscal backing. Combine that with deep Bush-instigated national debt and an addiction to oil and you have a huge economy that is highly reactive to the price of oil. So when oil jumps, the US dollar begins to lose its footing.

Many people are fear-mongers that keep saying things like “Oh my gosh the dollar is going to collapse!” and they are dead wrong. Yes our oil addiction is a bad thing, but no there is no big collapse coming especially with Nesara just over the horizon. And even if there was something like this, the lifestyle and standard of living of most Americans would be relatively unchanged (as evidenced by the collapse of the Soviet Union where the life of the average person was virtually unaffected).

So no the dollar will not collapse any time during our lifetimes, but yes it is highly responsive to the price of oil. Switzerland is also an economy that relies on oil, but because their currency is linked to gold then they have a fiscal ‘buffer’ that can soften the effect that increases in oil prices will have on the franc. So high oil prices will have a profoundly lowered effect on the franc, and the effect will take longer to set in. As you should see this affords a savvy trader the 12-36 hour window where the highly responsive dollar will drop but the franc remains relatively unchanged.

When using this strategy it is probably a good idea to stick with the lower 20-30 pip profit targets because you are looking for 100% reliability and guaranteed profits, and the more money you try to ’squeeze out’ of the market the more risky it becomes.

Looking for free forex trading ebooks and reports? Go to http://TheCurrencyMarkets.com/forex-ebooks.htm to find a free forex ebook library.

Also try http://TheCurrencyMarkets.com/currency-trading-strategy-reports.htm for two of the most affordable and valuable forex courses around.

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This entry was posted on Wednesday, June 11th, 2008 at 12:00 am and is filed under Currency Trading. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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