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In today’s issue, we talk about the oil price cap, how it could affect the dollar, and what we think your trading strategy should be in this market.
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Oil markets are a hot topic these days.
And there are all the reasons for them to be in the limelight – from the hit on demand from Chinese markets to the looming Russian crude oil price cap decision.
These moves can have ripple effects across markets – from stock to bonds to Forex.
Let us see how a potential cap on Russian oil – which is one of the largest exporters to Europe – can move the U.S. dollar and how you can target potential profit from the resulting volatility.
Let’s start with understanding what these price caps are…
Crude Oil Price Cap
Western nations want to cap the price at which they import crude oil from Russia. The idea behind this is to keep Russian barrels on the market but limit how much money Russia can make from those barrels.
European Union governments have tentatively agreed on a $60 a barrel price cap on Russian seaborne oil. This is an idea of the Group of Seven (G7) nations and there’s an adjustment mechanism to keep the price cap at 5% below the market price.
This will play an important role in the markets in the coming weeks as the European Union (EU) is scheduled to begin the above embargo on Russian oil starting December 5.
Here’s how all of this can move the dollar…
Crude Oil and U.S. Dollar
Crude oil is quoted in U.S. dollars (USD). So, countries that import oil pay for it in dollars and countries that export oil receive payments in USD.
Now, the United States of America is one of the largest producers and exporters of oil in the world. So it makes sense that any change in crude oil prices would impact the dollar.
When the value of the dollar is high relative to other currencies such as the Japanese Yen or the Euro, it takes fewer dollars to buy a barrel of crude oil. However, when the value of the dollar is low, more dollars are needed to pay for that same barrel.
How does this fit in the proposed Russian crude oil price cap?
Well, as things stand today, Russia is already selling crude at a steep discount to buyers like China and India. So, the price cap would not have a huge impact but it could raise oil prices to a certain extent.
There are a lot of moving parts here and it remains to be seen how the EU plans to move ahead on December 5th.
But one of the ways you can trade the Forex market in this environment is to look for currencies of the nation that have huge crude oil imports and exports.
These can be the dollar, the Euro, the Ruble, Japanese Yen, etc.
USD Setups
Our top analysts are keeping a close eye on all the developments from this space. As things stand today, they are noticing a potentially exciting pattern playing out in a few USD setups in the coming weeks.
You can know more and trade these setups LIVE with our analysts in our webinar by clicking HERE.
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