Written by:
Patrick Mikula CTA
Mikula Forecasting Company
www.MikulaForecasting.com
patrick@MikulaForecasting.com
Copyright © 2008 by Patrick Mikula All Rights Reserved
Previously I wrote about the effect of new foreign exchanges trading in crude oil but not using the U.S Dollar to price the crude oil. After many delays the Iranian oil exchange is set to start trading in a few days on February 17, 2008. The Iranians are going to start slowly with natural gas trading only in the Iranian currency, named the Rial. Later in 2008, trading will ramp up to include trading in crude oil. Trading will then be priced in the Euro Currency. The effect of pricing natural gas and crude oil in non-dollar currencies means that foreign countries no longer need massive currency reserves in US Dollars for buying oil. The long term effect is a slowly declining US Dollar. I do not see this causing a crash in the US Dollar but I have included my 2008 forecast for the US Dollar and the Euro Currency below.
The first chart below shows the US Dollar index with my 2008 forecast drawn on the chart. You can see that I expect the US Dollar to zig-zag lower with the low coming toward the end of 2008 near an index level of 70. I do not expect the US Dollar index to collapse in 2008 but rather to form a steady decline. A decline in a national currency means that the prices of goods and services in that country will be forced to rise as the currency declines.
The Consumer Price Index is the inflation rate calculated by the US government but this excludes food and energy. To find the real inflation rate, I believe you will need to add between 5 and 7 percent to the CPI. Most of the inflation will not be caused by changes in supply and demand but by the decline in the US dollar.
The second chart below shows the Euro Currency futures contract (EC) which is the Euro vs the US Dollar. The chart also has my forecast for 2008 drawn on it. You can see the Euro price should zig-zag higher for most of 2008 making a high late in the year around 1.56 against the US Dollar.
