The US Dollar, Oil, & Equities: Opportunities Abound in 2017
Not too long ago, I made a video describing the trading opportunities I see for 2017. Since then, we've witnessed some interesting developments that confirm my original expectations. In particular, I mentioned that it was likely that OPEC and non-OPEC members would likely stand firm on their decision to cut production in order to support oil prices above $50 per barrel. I also mentioned that the US dollar would likely continue to gain strength due to likely uptrend US interest rates, and lastly, I noted that US assets would likely perform well due to the positive outlook facilitated by the pro-business inclinations of the current US federal administration. All of these have shown clear indications that we are on track to realize our previous expectations. Let's start from the top with crude oil.
Oil prices have generally remained in a narrow price range between $51.00 and $55.00 per barrel. While I still expect a rise in oil prices over this year compared to last year, we have yet to see oil prices change significantly since the time where I published my last video. Part of the reason why oil prices have not moved outside of this range is that the US has consistently failed to consume oil at a greater rate than current production.
We've only seen three inventory declines since December 2016 as opposed to ten increases. Clearly, US consumption is lagging behind demand, but production by signatories of the OPEC production cut agreement from December 2016 have consistently upheld the agreement and have cut production as scheduled. I expect this to continue, and in the event of another slump in oil prices below $50 per barrel, I expect further production cuts to be pursued.
With respect to the US dollar, we have also generally been range bound, although the dollar is up since the beginning of February. The US dollar peaked in December of last year, as the US Federal Reserve Bank announced that it would raise interest rates by 25 basis points.
However, the dollar began to slide in early January 2017, before recovering half of the January decline by the end of February. Overall, the euro currency continues to weaken as investors become more skeptical about the euro's long term value, particularly in light of upcoming elections in The Netherlands and France where it now seems likely that anti-EU candidates will win the popular vote. It is also clear the the ECB is not likely or practically able to raise interest rates, making the US dollar even stronger. Lastly, Janet Yellen stated on Friday March 3rd that the FOMC will likely raise interest rates this month, again making it clear that the US is on track for an uptrend in interest rates this year.
I'll conclude my follow-up by saying that we are in the midst of strong potential market trends for 2017.
Oil and the US dollar are likely to find strength as we progress further into 2017, and the US equities markets are likely to continue to attract investment both domestically and abroad. In particular, foreign investment from Europe is likely to see greater demand as European assets should continue to be less attractive due to political and social turmoil, as well as a struggling economy in Europe.
If you want to learn more about how we're taking advantage of these and many other opportunities, be sure to check out our most recent Options Power Session using the link on this page. Until next time, have a great day and trade well!