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How to Trade Oil-Linked Currencies Now

Monday, 4 Jun 2012 | 9:25 AM ET
AP

Oil prices have been falling, which should make for an easy trade - but be careful.

If you think the euro has been having a rough ride, take a look at oil prices.Crude has moved below $100 a barrel, and grim economic reports like Friday's nonfarm payrolls aren't exactly helping.

At first glance, it seems like a good time to sell currencies from oil exporting countries - but be careful. Rebecca Patterson, chief markets strategist for J.P. Morgan Asset Management, Institutional , says oil prices are rapidly approaching a minimum level that oil producers have a motive to stay above.

"I think you could see oil down more in the very short term," she told CNBC's Melissa Lee. "But don't forget the oil producers here. When it comes to oil, this isn't just about economics and demand, it's also politics." Patterson notes that Kuwait has said it sees fair value for Brent crude at around $100 a barrel - above current levels.

"Oil producers need the revenue coming in from that price to have balanced budgets so they can have social stability," she continues. "If we get another five or ten bucks a barrel, you'll start seeing verbal intervention from the producers to try to stabilize it."

Want historical evidence? Patterson points out that after the financial crisis, when economic conditions were truly awful, oil prices turned up after all the monetary and fiscal stimulus.

You can watch the discussion on the video.

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