Forex

It is a usual thing to view the EURO as the perfect currency hedge for the descent of the US Dollar and in fact, the US index, by which the value of the USD is measured, has a big chunk attached to the pair EURUSD.

It seems now that more and more investors are doing this hedging function by buying commodities and especially GOLD and OIL. We thought that it would be a good idea to see how these "things" are doing against the EURO.

One picture is worth a thousand words and this is why we offer the attached daily chart to explain the results of our mini research:

1.The upper part of the chart has the US Dollar in blue, the EURO in green, GOLD in orange and OIL in mauve. As you can see, all the anti-USD assets have appreciated while the US currency has plunged. It is also evident that the fluctuations in each asset were a bit different. GOLD seems to be trendier while the EURO and OIL are more trading range bound with a slant to move up.

2.This last point can be seen also in the following two windows that contain the value of GOLD and OIL in EURO denomination. As you can see, although between period 1 (black) and 2, the precious metal was going up in EURO value while OIL did not, both did move up in the European currency terms.

3.In the last window, we can see graphically, the correlation between the two commodities. The more the values are positive, the more correlative they are and, again, between 1 and 2, the normal positive values went negative, but in general, they are on the "same page".

Conclusion:
The better hedge against the US Dollar depreciation is GOLD. The best next thing is OIL and only then you can choose the EURO for this purpose. We think that the fact that GOLD is more a "financial" asset, less influenced by supply and demand pressures like we have in OIL, is the reason of this phenomenon.