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Will the US Dollar Recover from 3-Year Lows?

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Crude oil futures 

April US crude oil futures rose 1.2% from the previous settlement and were trading at $62.29 per barrel at 1:10 AM EST on February 19, 2018.

The Vanguard Energy ETF (VDE) and the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) declined 0.2% and 0.6%, respectively, on February 16, 2018. These ETFs have exposure to energy companies. March US crude oil futures contracts rose 0.6% to $61.68 per barrel on the same day. The contracts will expire on February 20, 2018.

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US dollar 

The US dollar depreciated 1.5% to 89.1 on February 9–16, 2018. US crude oil prices advanced 4.2% last week. The depreciating dollar partly supported oil prices last week.

The United States Oil ETF (USO) advanced 4.4% to 12.3 on February 9–16, 2018, while the ProShares Ultra Bloomberg Crude Oil ETF (UCO) gained 8.8% to 24.5 during the same period. These ETFs follow crude oil futures.

US dollar’s highs and lows

The US dollar hit 103.8 on January 3, 2017—the highest level in 14 years. On the other hand, the US dollar hit 88.55 on February 1, 2018—the lowest level since December 2014.

The Power Shares DB US Dollar Bullish ETF (UUP) tracks the US dollar’s performance. UUP also hit a three-year low of 23.1 on February 1, 2018.

Impact 

US crude oil prices advanced ~12.4% in 2017, while the US Dollar Index depreciated ~9.8% in 2017. The weak dollar partly supported oil prices. The US dollar is expected to be bearish in the medium term, which is bullish for oil prices.

The US Dollar Index averaged 96.6 in 2017. A Reuters poll estimates that the US dollar could end 2018 at ~88.7. The improving economy outside the US could see the US dollar lag compared to its peers. Major central banks could increase interest rates in 2018. The expectation of a weak dollar is bullish for oil prices.

Next, we’ll discuss US and Cushing inventories.

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