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Essays 8
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April 28,2008
Oil and Euro: Overview of Current Situation and Long Term prospects
The month of April is closing with Oil and Euro at the measured maximum targets of $119 and 1.6 respectively according to the parameters used in this site: Oil price 80% above its 48 months mavg (Chart 1)and Euro 32.5% above Purchasing Power Parity (PPP) corresponding to the the first historical peak reached in 1990 (Chart 3). In addition, Oil at near $120 has reached the top of a multi-years up-trending price channel spanning 70 years (Chart 2).These conditions have been realized as the US Dollar reached a bottom and is now set to rally or continue to move sideway with no new lows likely to be made in the short to intermediate term. Given this situation, it should be a normal expectation now to see a correction to unfold for both Oil and Euro. In this case, Oil prices could fall to $90-100 and the Euro to 1.45-1.5.
As to the long term prospects, if the US economy recovers beginning in the second half of this year as economists and the stock market now expect, it would be difficult to envisage a deep and prolonged correction of Oil prices. Rather, it would be reasonable to expect a continuation of the uptrend perhaps with an up-sloping zig-zag pattern hugging the upper line of the price channel similar to the pattern seen during the 2005-07 period. Should this pattern be realized, Oil prices would reach $160 sometime in late 2009 or early 2010. The Euro during this time could recover and reach a USD/Euro exchange rate equivalent to the second historical peak of 35% above PPP seen in 1995 or USD/Euro 1.62-1.64.
Oil and Euro: Overview of Current Situation and Long Term prospects
The month of April is closing with Oil and Euro at the measured maximum targets of $119 and 1.6 respectively according to the parameters used in this site: Oil price 80% above its 48 months mavg (Chart 1)and Euro 32.5% above Purchasing Power Parity (PPP) corresponding to the the first historical peak reached in 1990 (Chart 3). In addition, Oil at near $120 has reached the top of a multi-years up-trending price channel spanning 70 years (Chart 2).These conditions have been realized as the US Dollar reached a bottom and is now set to rally or continue to move sideway with no new lows likely to be made in the short to intermediate term. Given this situation, it should be a normal expectation now to see a correction to unfold for both Oil and Euro. In this case, Oil prices could fall to $90-100 and the Euro to 1.45-1.5.
As to the long term prospects, if the US economy recovers beginning in the second half of this year as economists and the stock market now expect, it would be difficult to envisage a deep and prolonged correction of Oil prices. Rather, it would be reasonable to expect a continuation of the uptrend perhaps with an up-sloping zig-zag pattern hugging the upper line of the price channel similar to the pattern seen during the 2005-07 period. Should this pattern be realized, Oil prices would reach $160 sometime in late 2009 or early 2010. The Euro during this time could recover and reach a USD/Euro exchange rate equivalent to the second historical peak of 35% above PPP seen in 1995 or USD/Euro 1.62-1.64.
| Chart 1- Oil at the top : 80% above 48 mos mavg |
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| Data as of April 25, 2008 |
| Chart 2- Oil at top of multi-year price channel |
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| Data as of April 25, 2008 |
| Chart 3- Euro reached 32.5 % above PPP as in 1990 |
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| Data as of April 25, 2008 |
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