FX.co ★ Under the pressure of the currency war: will oil withstand it?

Currency wars can lead to chaos in world markets. In such a situation, Commerzbank analysts recommend buying US dollars and selling currencies to emerging markets. Experts also advise everyone to expect a drop in oil prices.

Currently, black gold prices remain under pressure. Investors are worried that the protracted trade conflict between the US and China will slow down the global economy and reduce fuel consumption. Moreover, the huge supply of oil in the United States and the prospect of its increase in 2020 contribute to an excess of raw materials in the world. Fears of oversupply create difficulties for investors and oil producers who are betting on rising prices.

Geopolitical uncertainty is forcing investors to get rid of risky assets, including currencies of developing countries, according to Commerzbank. Recently, events have been developing rapidly, while the market dynamics are similar to a swing: it goes from euphoria to falling to the bottom and back in a short period of time.

Commerzbank emphasizes that the White House's chaotic actions confuse market participants. This paves the way for all sorts of risks with the main concern on further depreciation of the US dollar against the renminbi. Commerzbank believes that in the absence of a trade deal between the United States and China at the moment, the best strategy is to sell the currencies of developing countries and buy a dollar in any downturn.

Bank experts are confident that the escalation of the trade conflict and the currency war, which is gaining momentum, pose risks not only for emerging markets currencies but also for the entire world economy. Oil prices are also under pressure. Analysts find it difficult to answer whether the black gold market can adequately get out of this situation without bringing down the price of raw materials.

In recent months, China has been one of the largest buyers of American oil, but the trade confrontation is making its own adjustments. Furthermore, Chinese authorities may abandon raw materials from the United States. In the event of such a development of events, American oil producers will have to look for other markets, and this may lead to oversupply and a drop in prices.