Dollar’s global reach is key to the race to $100 oil.
Traders and analysts are a smart bunch, but their tool box has two key items: patterns and correlations.
With patterns, if prices reacted a certain way in the past, we like to assume they will act that way going forward. Similarly, if we conclude that two series are correlated, we can assume the movements of one are based upon the other.
For crude oil, these correlations come with the dollar, which has an inverse (negative) relationship, and equities which have a positive relationship. However, yesterday the dollar fell by 1.53%, while equities rose 1.11 %.
Crude rose, i.e., its correlation with equities mattered more than its correlation to the dollar. Will this pattern repeat?