As goes Oil, So goes the Euro!

One thing I learned early on in my investing and trading career was that I can’t trust analysts or the news media! I learned that not only are these guys not as knowledgable as they should be, but that they also don’t alert everyone to the fact that things are changing until well after the fact.

One reason is because analysts and the financial news media make horrible investors. They’re okay at reporting or analyzing but not in laying down the money into investments at the best times.

Another reason is that analysts work for firms that are biased. They want to get on all of their positions first (as they trade “in house”) and then only alert you afterwards. That way, when you listen to the analysts and news reports, you are simply pushing up their positions and making them look like a genius.

Pros use this gauge rather than listening to analysts/financial news media!

So if I couldn’t trust analysts and I couldn’t trust even the financial news media to alert me to when to start making new investments in the markets, then what is an investor to look to in order to feel that they know the worst is over? Commodities!

Now this is not to buy the actual commodities but rather to use them as an indicator for buying stocks and currencies.

I look to major commodities like gold, copper, oil, steel, lumber, and even a commodities index...the CRB index (which holds a basket of commonly used goods).

Why commodities? Because when an economy is turning around, companies will need to use these raw commodities to make their products in order to expand their corporate earnings.

You see, copper alone is used in residential and commercial wiring of buildings, plumbing, computers, cars, etc. So the increase in demand for this commodity shows up first as companies then use the commodity to make the product that they will soon sell to the public or corporate America.

Oil only starts to perk up when the demand increases. So you will see the rise in the price of oil first, and then later on (months later minimally) the reports of the increase in demand will follow.

When an economy comes out of a deflationary (or even disinflationary) period back into a typical inflationary period, you will see it first in the rise of commodity prices. After all, inflation in its simplest form is the cost of goods going up in price. Well commodites “are those goods”.

Now what in the world does this have to do with using it to help to better time stock and currency purchases? As the demand for these pick up, the economy is in the “very beginning stages” of a recovery. That’s the best time to buy stocks for the long haul (with cash, nothing margined).

It’s also the best time to go into currencies that have a higher yield than the U.S. dollar. Lately, many exotic currencies have been rising vs. the buck as the rise in commodites has taken place (like the Turkish lira, South African rand, etc. ). However, now this has spread to developed nations too that you may be more familiar with such as the euro, Australian and New Zealand dollars. See the chart below and you’ll see what I mean.

The Euro and Oil Follow Each Other Over Time! 

As oil fell, so did the euro vs. the dollar. As oil is perking back up, so is the euro vs. the dollar. So basically, if you have a feel for oil prices or even gas prices at the pump, then you have a basic feel for where the EUR/USD pair is going even though you may or may not have a background in currencies.

(By the way, in our Currency Investing course we teach about correlations like this with things you are familiar with and show how they affect currencies (which you may not initially be as familiar with). But who’s not familiar with gas prices!

Why does this phenomenon take place? Largely because oil is denominated in dollars which means that as the dollar goes up in value, it strengthens against oil. You could also say as oil gets cheaper (in dollar terms), your dollar goes further in purchasing the same amount of oil (or gas) as before. So these two, over time, tend to travel opposite one another.

So why vs. the euro? Because the euro is nicknamed the “anti-dollar”. It’s named this, because when people flee the greenback, it’s the first place that they go to because it’s the next biggest market and has the next biggest pool of liquidity. So if the dollar is being shunned, the first place money goes to, generally, is the euro.

So when you put all of this together, this is why the EUR/USD tends to track oil (and vice versa) over long periods of time.

The Worst is Over, yet Still Some Bumps Left!

Since oil, copper, gold, lumber, etc. have all started to perk up and have broken their downtrends, this tells me that the “worst is over”. Now it doesn’t mean everything is rosey from here! Far from it. There will be bumps along the way on the road to recovery.

However, dispite those “road bumps”, you will find that historically these are the best times to start accumulating new stock and foreign currency positions (like the EUR, AUD, NZD vs. the buck).

The best way for the average investor to do this is to open a micro forex account through FXEDU EDU_LLC">here. However, after you fund your live account...before you invest in currencies in your live account, you should do three things first.

1.      Open a demo account first, so that you can see how these currencies trade in real time.

2.      Get educated, so that you know what you’re doing! Do this through an online course for $19,99 here.

3.      View this short You Tube video to see how simple currency investing really is.

Bottom line: Don’t listen to the analysts and financial news media. Instead, learn tips like this that we professionals use to get a “head start” on the masses in your investing. Most people don’t know “when” to start accumulating stock through ETFs or mutual funds. They also don’t know the first thing about foreign currencies. However, the dollar will start a new “down cycle” soon, and those that know what to do can profit from it!

Sean Hyman

Contributing Writer

www.mywealth.com

instructor@mywealth.com