The (bullish?) link between the USD and Oil

Morgan Stanley has an interesting note out On the Link Between the USD and Oil. Basically, what Stephen Jen is saying is that the USD and oil price will be remain negatively correlated for a while yet. He lists 3 reasons each of how oil prices could drive the USD and vice versa. (See link above, or ask me for a copy.) "Specifically," he writes, "lower and stable oil prices should be positive for the USD, while rising oil prices should be negative for the USD."

I have made a bit of a hash of the y-axis on the Excel generated chart below, so I have left it out, but you get the idea, and they're all on the same scale. (Starting 1996, weekly data, Y-o-Y % change.)

Basically it looks more like Jen's call is "it's different this time."


He concludes, "For the global economy, a strong dollar/low oil price combination is much better than a cheap dollar/high oil price combination. Calmer commodity prices should also temper the hawkish bias some inflation-targeting central banks have had." That's pretty bullish for equities, but assumes that a strong dollar/low oil price combo really is what we're looking at. This time.

*** late addition: see here for correct chart!!
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