BRENT Oil/Russian Ruble Analysis: “Budget Rule” may contribute to further increase

January 23, 2019

By IFCMarkets

The “budget rule” may contribute to the further increase in PCI

In this review, we suggest considering the personal composite instrument (PCI) “BRENT vs the Russian ruble”. It reflects the price dynamics of a barrel of Brent crude oil against the Russian currency. Will BRENT/RUB prices rise?

This PCI grows when oil prices rise and the Russian ruble falls simultaneously. As a rule, the Russian currency, on the contrary, strengthens when oil prices rise and weakens when they fall. Because of this, BRENT / RUB prices usually fluctuate near their moving average line. Currently, the composite instrument has just reached it, and in a normal situation, there is not much point in opening a position. Nevertheless, now there is a chance that the trend will continue to move upward. Theoretically, this may happen due to the additional weakening of the ruble amid relatively high oil prices. Ministry of Finance of the Russian Federation buys US dollars in the amount of ruble budget revenues generated by the selling of Brent oil at a price higher than $40 per barrel. This is the so-called “budget rule”. From January 15 to February 6, 2019, the Ministry of Finance of the Russian Federation will spend 16 billion rubles daily for these purposes. The purchase of dollars for rubles may last until 2021, while there will be a “budget rule” in Russia.

BRENT/RUB


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On the daily timeframe, BRENT/RUB: D1 left the downtrend and approached the 200-day moving average line. It should be breached up, before opening a buy position. A number of technical analysis indicators formed buy signals. The further price increase is possible in case of the weakening of the Russian ruble and high demand for oil.

  • The Parabolic indicator gives a bullish signal.
  • The Bollinger bands have narrowed, which indicates low volatility. Both Bollinger bands are titled upwards.
  • The RSI indicator is above 50. It has formed a positive divergence.
  • The MACD indicator gives a bullish signal.

The bullish momentum may develop in case BRENT/RUB exceeds the last fractal high and the 200-day moving average line at 4350. This level may serve as an entry point. The initial stop loss may be placed below the Parabolic signal and the lower Bollinger band at 3700. After opening the pending order, we shall move the stop to the next fractal low following the Bollinger and Parabolic signals. Thus, we are changing the potential profit/loss to the breakeven point. More risk-averse traders may switch to the 4-hour chart after the trade and place there a stop loss moving it in the direction of the trade. If the price meets the stop level (3700) without reaching the order (4350), we recommend to close the position: the market sustains internal changes that were not taken into account.

Summary of technical analysis

Position Buy
Buy stop Above 4350
Stop loss Below 3700

Market Analysis provided by IFCMarkets