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Ruble weakens as crude hovers around $50 per barrel

The crude oil production cut agreement reached between OPEC and other oil producing countries assisted the commodity currencies to gain against the Greenback. While most of the commodity currencies gave back the gains soon after the Fed announced the rate hike, the Russian Rouble is yet to do so. The prevailing USD/RUB exchange rate of about 61.60 is only 100 pips away from the low recorded on December 13th . However, we forecast the currency pair to turn bullish in the days ahead.

The market was once again caught on the wrong foot on Wednesday when the Fed announced the possibility of three rate hikes in 2017, instead of the two expected by the market.

This resulted in a rush to cover the short positions that ultimately took the Greenback to a 14 year high against the Euro dollar. Trump’s proposed tax cut, an increase in spending, and deregulation is expected to result in an upward revision of the macroeconomic projections. This would ultimately strengthen the US dollar further.

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In the past few days, crude oil has fallen to a low of $51 once again. This would definitely hurt Russia as oil accounts for a major share of the export revenue. It should be noted that Russia has accepted to cut crude production by as much as 600,000 barrels per day, starting from January. However, last Wednesday, the US Department of Energy’s office stated that it will start selling oil from its strategic reserves.

OPEC’s latest report revealed that crude production has increased to 33.87 million barrels per day in November. In order to bring the production to 32.50 million barrels per day, the agreed production cut is no longer enough. There were also reports of possible increase in production by Nigeria and Libya. These two countries were exempt from the production cut due to the ongoing political issues in those countries. Thus, price of crude is expected to remain range bound between $51 and $53 in the short-term. A report from Capital economics voiced a similar opinion.

Russian economy also contracted by 0.4% y-o-y in the third-quarter of September 2016. During the second-quarter, the economy shrank 0.6% y-o-y. In October 2016, the trade surplus decreased to $6.6 billion, from $10 billion a year earlier. It was also below analysts’ expectation of $8.2 billion. On the basis of the details provided above, we expect the USD/RUB to turn bullish in the short-term.

The USD/RUB pair has bounced off the minor support at 60.80. The rising stochastic oscillator also indicates an increase in the momentum. So, the probability of a bullish reversal is higher.

USD/RUB Pair: Dec 19th 2016

USD/RUB Pair: Dec 19th 2016

The above analysis justifies a long position in the USD/RUB pair. The entry can be made near 62. A stop loss order should be placed 100 pips below the entry price. The long position can be sold at about 63.20.

A high or above contract would be ideal to generate profits from the anticipated uptrend. The contract should remain valid for one week. Furthermore, the investment should be made only when the pair trades near 62.


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