Forex Trader Top 3: Cost of Oil, Plummeting Euro, German Inflation

Mark Whistler is the founder of and is the author of multiple books on trading. Mark’s newest book, The Swing Trader’s Bible – co-authored with CNBC/Fox News regular guest Matt McCall – will be on shelves in late summer, 2008. In addition, Mark also writes regularly for and

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1. Oil at $150 a Barrel?

The News:

Oil futures posted fresh all-time highs on Friday, hitting $117 a barrel.

The Breakdown

According to the Associated Press, in Nigeria, “a militant sabotaged a major oil pipeline operated by a Royal Dutch Shell PLC joint venture and promised further attacks on the country’s petroleum industry.”

The news surfacing from Nigeria – the eighth largest oil exporter in the world – was the main catalyst behind oil’s new high on Friday. However, given that Wednesday’s weekly oil and gas storage report had already painted an extremely bullish picture for crude, Friday’s news was simply the coupe de grace buyers needed to take oil over $115 a barrel.

On Wednesday, the Energy Information Agency (EIA) reported total crude stocks declined by 2.4 million barrels for the week ending April 11, while also seeing gasoline inventories plummet 5.5 million barrels. What’s more, poor weather in Mexico, coupled with refinery capacity utilization declining to 81.4%, only further aggravated the situation. (FYI: Refinery capacity utilization posted the lowest weekly reading over 16 years.)

Moreover, in the past week, national gasoline prices topped $3.40 a gallon; however, the EIA predicts the national average will be $3.54 per gallon this summer. The EIA also stated, “It is important to note, however, that even if the national average monthly gasoline price peaks around $3.60 per gallon this summer, it is possible that prices at some point will cross the $4 per gallon threshold.”

What’s more, though demand is softening slightly in the U.S., global consumption is not showing significant signs of retreat. Discussing global consumption the EIA stated, “World oil consumption is expected to grow by 1.2 million bbl/d in 2008. Non-OECD countries are expected to account for over 1 million bbl/d of world consumption growth, while OECD consumption is expected to climb by 90,000 bbl/d. Higher oil prices and slower economic growth have dampened consumption in the United States, but available partial data indicate global oil consumption is still increasing because of continued growth in China, India, Russia, and the Middle East oil-exporting countries. In March, China’s oil majors were reportedly rationing diesel fuel in parts of the country.”

The Bottom Line:

Though the EIA predicts WTI crude oil prices will average $101 a barrel in 2008, there’s plenty of room for oil to run even higher, based on global demand alone. Toss on a few supply eruptions though (like a pipeline or refinery bombing in Iraq) and $150 could pop up out of nowhere.

2. Euro Falls Out of Bed; But the Story Isn’t Over Yet

The News

In the early hours of the morning on Friday, the euro plummeted roughly 140 PIPs, after Jean Claude Junker (ECB member) stated that currency markets missed the real message from the G7 meeting, adding that the euros recent strength against the U.S. dollar was “undesirable.”

The Breakdown

U.S. dollar bulls are looking for some sort of comments to surface from the ECB that indicate a shift in monetary policy. Late night, they got it and the euro declined accordingly. However, with oil pushing new highs on Friday, the U.S. dollar could still lose its footing.

The ECB has its hands tied with inflation topping 3.6% year over year – and needs to cut interest rates. However, interest rates typically only drive inflation even higher; thus, the ECB has backed itself into a corner.

Next week, traders will want to look towards the Bank of England minutes released on Wednesday for further guidance towards the UK’s economy and comments regarding the Euro Zone. On Thursday, the Euro Zone Monetary Developments report for guidance on the year over year changes in M3. The ECB currently considers “non-inflationary” M3 growth at 4.5% year over year. In February, M3 growth clocked in at 11.3%, indicating some slowing from the 12.4% witnessed in November. When M3 growth rockets, banks usually raise rates and conversely cut in periods of low annual growth. Should M3 come in below par, the ECB will have one more rate-cut-needed-now sigh blinking over its head.

The Bottom Line

The ECB’s plan to just run right over global credit and slowing GDP issues doesn’t seem to be working. Now, the ECB will likely lower borrowing costs as the first measure to keep liquidity flowing within the Euro Zone. However, the ECB is running out of time and tools, all of which indicates the euro might have a chance at new highs – yet again. The story needs a little time to unfold still, but never say never.

3. Inflating Germany

The News:

On Friday, Germany’s PPI report indicated prices for manufactured goods grew 4.2% year over year in March.

The Breakdown

Inflation, inflation, inflation: it seems like all I talk about anymore. However, in the case of the Euro Zone inflation is a massive threat to GDP growth, as confirmed in Germany’s PPI report. What’s more, prices for intermediate goods are also accelerating, with consumer goods following suit to the tune of 4.6% year over year.

The Bottom Line:

Continued inflationary pressure within the Euro Zone will only add pressure to the ECB in the weeks to come. Germany’s price increases have muffled consumer sentiment within the country, as seen in April’s -40 reading, a massive decline form the May 2007 high. Europe is in trouble.