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How Will US Non-Farm Payrolls Impact Oil’s Current Momentum?

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Jan. 9 2017, Published 6:56 a.m. ET

US non-farm payrolls

US (VFINX) (VOO) non-farm payrolls rose by 156,000 in December 2016, according to the U.S. Bureau of Labor Statistics’ report on January 6, 2017. The expectation had been for a rise of 175,000.

However, wages grew 2.9% compared to December 2015.  It could mean more demand for crude oil–derived fuels like gasoline and diesel as more money comes into consumers’ hands. It’s bullish for crude oil.

On the other hand, it also suggests that the US economic (VFINX) (VOO) recovery is intact—warranting a rate hike. The US dollar (UUP) rose 0.7% on January 6, 2017.

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US Dollar Index and crude oil

The dollar usually has an inverse impact on crude oil prices. A stronger dollar makes crude oil more expensive for oil-importing countries and pressures prices. The opposite is also true. In the past four trading sessions, the correlation between crude oil prices and the US dollar was -73.6%. It should help explain crude oil’s muted gain despite bullish wages.

So, employment data are an important factor for crude oil prices. The data can have a direct and indirect impact crude oil prices in more than one way.

Impact on energy ETFs

Energy ETFs are also impacted by economic data and the relationship between crude oil prices (UWTI) (USO) (OIIL) (USL) (SCO) (DWTI) (UCO) and the US Dollar Index (UUP). These ETFs include the Direxion Daily Energy Bear 3X ETF (ERY), the First Trust Energy AlphaDEX ETF (FXN), the United States Brent Oil ETF (BNO), the Energy Select Sector SPDR ETF (XLE), and the United States Oil ETF (USO).

In the next part, we’ll discuss the relationship between crude oil prices and the S&P 500 Index.

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