Currencies, Commodities and Geo-Politics

Although we at Alvexo usually educate new traders that it’s better to invest with the flow of the market, the more experience you gain, the more you’ll want to try and predict future trends – simply because that’s where the big money is. Learn about the relationship between economic indicators and news events, or, between currency pairs and commodity values.

One way to do this is by studying the relationship between economic indicators and news events, or, between currency pairs and commodity values.

Most asset prices are influenced by supply and demand, politics, economy, and so forth. The two classic examples are oil and gold. Both are priced by their major producers and consumers.

With gold, the vast majority of its production is in one place – Australia. As a result, the correlation between the price of gold and that of the Australian dollar is nearly rigid. This can be good for anyone trying to predict movements in the Australian dollar ahead of time. Simply look at gold first, then watch it reflect in the Aussie dollar shortly after. And since most brokers offer lower spreads and commissions on currency pairs than on commodities, you can trade on gold cheaper by simply trading on the Australian dollar in its stead.

Oil is another example, but not like you’d think. Since the US is the world’s major oil consumer, oil prices are quoted in dollars. Also, more money to spend by US consumers means more spent on fuel. As a result, the relationship between oil and the US dollar is tight; but it certainly isn’t fixed. In fact, oil is a rather combustible asset and its price versus the US Dollar has been known to double in the space of two years.

Once again, if we’re looking for currencies that are immediately influenced by oil, we need to look to the producers. And no relationship is tighter than oil’s to Canada. Canada’s oil reserves are second only to Saudi Arabia. What makes it even better is Canada’s proximity to the US and China – also a major oil consumers. And since Canada is politically stabler than the Middle East and Russia, here again, like the Aussie-Gold brotherhood, we have a currency that reacts quite faithfully to the rise and fall of oil demand and oil option prices.

Now consider that gold in its ingot form is almost inert, whereas oil’s volatility is ruled by wars, the global economy and a host more. You now realize why finding a proxy to oil isn’t simply a matter of getting better trading terms. Where prices can rise and fall dramatically, having a currency that follows that with a short delay can be priceless information.

In short, in forex, it pays to keep an eye open on several markets at once – especially when you know how one is going to influence the other. It’s almost like controlling the button that turns the money machine on or off.

In Forex, it pays to keep an eye open on several markets at once – especially when you know how one is going to influence the other. Join Alvexo.com today and learn how to diversify your trading portfolio and generate more successful trades.