Currency report: Oil scares investors

Last week began in a fairly upbeat mood. After slightly better than expected data from the US and generally decent earnings reports from multinational companies, various stock indices headed northward and the dollar gained versus other major currencies.

At a certain stage, we even witnessed a breaking of the $1.5350 resistance level on the EUR/USD, which could have been a portent that the pair was heading to a further decline.

This didn't happen, however, partly because of hawkish comments from European Central Bank chief Jean-Claude Trichet, and partly because of the rise in oil prices. Since May 1, oil has gained as much as 15 percent in dollar terms, sparking widespread concern about the global economy's prospects and leading to a significant correction on international stock markets.

Should high oil prices persist, or even rise further, the prospects of a rapid recovery in the US economy would disappear and stock indices would sink further. The USD/JPY, which has so far stopped at the €102.60 support level, would also head for negative territory. A fall on the USD/JPY, moreover, would to some extent support the euro and the franc.

Przemysław Kwiecień, X-Trade Brokers Dom Maklerski SA