Basics

The correlation between Oil and Forex


One recurrent question in the market is if there is a correlation between the price of oil and forex. If you do a quick search on the Internet, you will find many explanations and graphs showing proof of oil prices closely following the price of certain forex pairs.

As a formally educated economist, my standpoint is that there is no strong scientific evidence of this correlation. However, there’s an explanation of the market sentiment of price correlation for oil and forex pairs.

For example, petroleum oil is a very important energy commodity in the world economy since the start of the industrial revolution. Because of its role as a primary energy source in many industrial applications, and as an asset in financial markets, oil is also a driver of political power, beyond exploration and natural resources.

Therefore, every nation that wants to secure a strong economic and political position in the international theater must have control of enough sources of petroleum oil.

petroleum oil and its importance to world economy

In parallel, the United States establishes a long hegemony in the world market, using the US dollar as a strategic tool of influence in other economies. Since the Bretton Woods Agreement in 1944 and the subsequent floating of exchange rates for the first time, the US dollar is the standard currency for international trade in the forex market.

Forex and oil prices

Considering that major petroleum producers convert their resources to US dollars to manage their stock inventory, this exchange pair became known as petrodollars. So, there is a connection between oil and currencies like the US Dollar. The importance of country producers of oil creates a very close relationship with the major economies of the world.

Many economic and geopolitical events can affect the US dollar and oil that occur at the same time. And while such events may have the same causes, they don’t always have a direct relationship with each other.

An example is when George W. Bush started a war in the Middle East, it pressured the American budget with more military expenses. At the same time, such actions send a signal of new potential tax increase or higher interest rates increases to cover new military expenses.

Considering that a declaration of war is normally not good for international trade relations, it can trigger worse expectations from global investors. As a result, a decrease in risk tolerance worldwide can follow and harm growth in the world economy.

Conversely, currencies such as the US dollar are a standard of international trade, and in times of market uncertainty, investors flock to buy safe-haven assets such as US dollars, which causes its price to increase.

In parallel, once the theater of war is placed in a specific country or region, for producers of petroleum there can be an immediate expectation of shortage in oil supply. Such events that reduce supply can cause a price spike for oil in international commodity markets.

Analyzing forex and oil prices

Below is a chart screenshot with the price of the USD/CAD relative to the price of Oil, which appears to move closer in the same direction at the same time. Because these assets were affected by the same causal events, does not mean these are necessarily correlated. In other words, knowing how oil will vary in the future, doesn’t mean you can predict how forex prices will behave.

The conclusion is that it is more recommended to be cautious and monitor separately the factors that cause oil prices to change, versus changes to forex prices. Just because sometimes they vary in the same direction does not guarantee that they will always vary in the same direction. Learning is a process and education is hearing a second opinion.

If you want to go beyond commonplace, we suggest you follow Wiseinvest content. On our website, you’ll find updated material covering economic, trade opportunities, and best practices to improve your forex trading results. Wiseinvest’s mission is to help you be truly well-informed to make your own decisions in the market.

You can also receive information and market alerts from Wise Signals and intelligently complement your trading approach. The future of the financial market relies on Artificial Intelligence and Wiseinvest believes that the future is already beginning!

The best way to trade forex

There are two ways to invest with our AI in forex:

1. Automated with AI-Trading. Check out the 3 steps to trade automated with our AI.

automated trading with ai bot

By trading forex automated with AI, you will save time and improve your performance without monitoring the market and managing trading platforms.

With Automated AI trading you do not need MT4 / MT5 and other trading platforms to invest in forex. All forex trades are automatically placed into your broker account every time that our AI system identifies a new worthy trading opportunity. You can monitor the AI trading performance in real-time directly on our dashboard.

Automated AI trading benefits

  • Setup in 3 minutes.
  • Totally hands-off, from anywhere.
  • Invest from just $1.
  • APY of 40% over the past 13 years*.
  • Lightning-fast execution & no slippage.
  • No commissions, no management fees.
  • Portfolio with 40 different automatic strategies.
  • No MT4/MT5 or other platforms required.
  • Test with a risk-free practice account.
  • Trading results directly on our dashboard.

Don’t you have a broker account yet? Our AI is integrated to trade automated with the broker Oanda. Click here to open an account.

2. Manually with AI forex signals.

Wiseinvest also provides AI forex signals that perfectly fit into MT4, MT5, and any trading platform. To trade with our AI forex signals, you must simply copy the data you receive from each real-time signal into any forex brokerage account of your choice.

There are five unique variables for each AI signal, and each must be copied exactly, in order to match the performance of the signal as close as possible.

Each AI forex signal alert consists of the following five data points:

  • Symbol (forex pair)
  • Direction (long or short)
  • Position size (number of units or lots)
  • Take profit (price level to exit with maximum gain)
  • Stop loss (price level to exit with maximum loss)

Check out how to trade with our AI forex signals.

  1. Subscribe to a Wise-Plan.
  2. Open a Brokerage account. Check this article about the best forex Brokers.
  3. Set an amount and a position size on our Wiseinvest dashboard.
  4. Our AI will send you real-time trading alerts by email and Telegram.
  5. Copy the signals and paste into your Brokerage account.

All forex signals are sent every time that our AI trading system identifies a new trading opportunity. Our trading strategies are developed on a variety of time frames such as 4 and 8 hours.

Wiseinvest AI forex signals are Market Orders and you do not need the entry price. You can copy each signal while it is available on our dashboard. We do this way to assure that traders will just place signals while they are good to be traded.

You can trade forex with our free forex signals clicking here, or with our Premium subscription that provides you unlimited AI signals and automated AI trading in partner brokers. Whether you are a beginner or a professional forex trader, our AI trading system can help you save time and improve your trading performance. Get started with free AI.

When investing through Wiseinvest automated AI trading or AI forex signals, you do not need to calculate pips and change the leverage in your forex broker account. Learn more about leverage in forex trading clicking here.

What is the AI performance in forex trading?

The Win Rate of our AI varies according to the period and can reach up to 95%. The performance is based on the efficient frontier measurement metric, which means that our model is profitable whenever the Win Rate is greater than 60%. All strategies of our AI trading system seek stable returns and sufficient results to achieve an average return of 40% per year (APY), without the use of high leverages.

We understand that what matters in forex trading is the final result. Thus, the investor needs to consider that Win Rate is not always the best metric to measure performance in forex, as other signal providers disclose. For instance, out of 100 trades, only 1 trade may be enough loss to make the 99 trades not profitable. In this case, the Win Rate would be 99%, but the final result would be unfeasible (negative).

We focus on the return of 40% of APY and not just on Win Rate.

It is essential to observe that forex brokers may charge spreads, commissions, and overnight fees in your trading account, and these factors can affect the AI performance. You can check our forex trading track record to understand more about AI trading performance clicking here.

How much do I need to trade forex with AI?

You can start in forex trading with free AI signals or AI trading account and deposit just $1 in the broker. It is also possible to test using a risk-free practice account with our AI trading system. However, in order to do efficient risk management in real accounts, we suggest you start from at least $100. Notice that some forex brokers require different initial deposits to trade forex.

What is the trading strategy of our AI?

Our AI strategy is the combination of different AI trading systems, with more than 100 features, that define 40 different strategies which simultaneously consider: Quotes of the 28 forex pairs, Supports & Resistances in different time frames, Trends and Counter-trends, Cross-indicators, Index of each pair, Economic Calendar, Investors Sentiment.

Our AI analyzes those fundamental, technical, and sentiment factors that affect forex trading, and all criteria are evaluated in real-time using different weights. After completing the analysis, the choice of the signal emission strategy is made considering the increased likelihood of short-term profit and the amount available for investment.

Using technical analysis, our algorithm considers not only the patterns of various trends, including support and resistance levels and cross-indicators, but our AI is also able to create its own real-time index for each currency pair, that is used to identify what is the best direction and target.

In relation to fundamental analysis in forex, the AI makes a correlation within the economic calendar to find news data that can affect specific currency pairs.

Takeaways

  • There is no strong scientific evidence of the correlation between oil and forex prices, but they share some of the same fundamental drivers that make them often vary in the same direction.
  • If you want to operate in both markets, then monitor each one independently. If you don’t have time enough to do so yourself, Wiseinvest can provide trading signals through our Wise AI forex trading system service.

“The stone age did not end because the world ran out of stones, and the oil age will not end because we run out of oil.” (Don Huberts, 1999). It will end because Artificial Intelligence will show us more profitable ways to invest.

Disclaimer: Forex and Contracts for Difference (CFDs) are complex instruments and come with a high risk of losing money due to leverage. Forex trading is not suitable for everyone. You should consider whether you understand how forex and CFDs work and whether you can afford to take the high risk of losing your money.

The forex brokerages displayed shall disclaim the overall performance of traders in their platforms. Oanda warns that 76.8% of retail forex traders lose money trading CFDs. XTB warns that 80% of retail forex traders lose money trading CFDs. FXCM warns that 74.74% of retail forex traders lose money trading CFDs.

The performances aforementioned are not related to Wiseinvest AI forex trading and AI forex signals system. You can check the performance of our AI forex system on our dashboard.