You're overthinking the whole dollar and oil connection.
As a trader, I love finding intermarket relationships to guide the way I look at markets. While those links matter, I have to remember that they aren’t set in stone. They change as the world changes.
War and energy production can really shake up these correlations.
In early 2022, the correlation between the dollar and oil hit a 20-year high.
That year, the Russia-Ukraine war had just begun, and there was a rush into the US dollar. I like to call the dollar a "panic currency" because when things get tough, people flock to it for safety.
In 2022, the war caused a huge spike in energy prices, and the dollar rose along with it.
Right now, with so much uncertainty in the world—between wars and an unclear future with the election right around the corner—it makes sense that the dollar would move alongside oil.
But it won’t last forever.
Notice the strong and consistent negative correlation from 2002 until recently.
And then notice how it pinged back and forth from a strong negative to a strong positive correlation in the late 1990s.
The point is, we’ve seen this relationship play out in about every different way over the years.
It’s easy to get caught up in the dollar-oil connection, but we must remember that nothing is permanent.
The relationship will shift with global events, just like how the Russia-Ukraine war sent both higher, ushering in the current positive correlation.
A lot of times, we won’t know or care to know what is changing the correlation. But, we’ll see it happening.
So, while traders rely on these patterns, it’s crucial to stay flexible and keep the bigger picture in mind. Markets can change quickly, and so can correlations.
We think the current positive relationship between dollars and oil is likely to change. We’ll be ready for it.
Kenny Glick from Hit The Bid went live with JC the other day to walk through how he uses VWAP to trade the biggest movers every day. See a few of his recent winners:
