USD/RUB Analysis. Dollar Could Drop to 70.4 Per Ruble

Rising demand for oil and natural gas soarded the price of these assets. Russia’s economy is mainly dependent on export of oil and gas. Europe’s energy crisis came in handy for the ruble and strengthened it as nearly half of the bloc’s gas is imported from Russia. The energy crisis could have a more dramatical outcome as Russia is willing to sell its gas to a highly demanding Europe, but the geopolitical tension between Ukraine, EU’s ally, limits capabilities.

Russian gas is already being supplied to Hungary and Croatia via the new TurkStream pipeline bypassing Ukraine. And we all know that the US and the EU imposed sanctions to Russia due to the Ukraine-Russia conflict. Now why this is important, you may ask. Increasing the natural gas supply to Europe will not only increase the Russian income in foreign currency, but will also give Russia an edge, which in fact will strengthen the Russian ruble.

Globally, oil prices soar, as lockdown restrictions ease and airlines resume operations. Crude is traded near $80 and Brent already surpassed the $83 per barrel mark. Russia is World’s third largest oil supplier. The Russian economy was severely impacted during the Global Covid19 lockdown, as the oil demand decreased drastically. Last year’s total oil and gas income based on the data of the Ministry of Finance of Russia was over $72 bln.

There is a significant increase in Russia’s budget from the oil and gas sector, the year is yet to end and the total income from January to September is almost $86 bln. Through the year, the Russian Ministry of finance continued its streak of foreign currency and gold purchases. These factors support the strengthening of ruble at least until the end of the year, while the growing foreign currency portfolio will act as a great instrument for Russia to keep the USD/RUB rate within the range of their interest.

From the technical point of view, USD/RUB also looks bearish for now. There is a descending channel on a daily USD/RUB chart.

Chart by TradingView

It might seem that the price has formed a double bottom formation, however there is a high chance that the price will drop lower to 70.5 to test the dynamic support, where it might retrace to test the upper threshold of the falling wedge pattern. The 70.4 support area is an important level to watch, as it will be decisive for the next move of USD/RUB. Based on the rules of the falling wedge pattern, the price must complete the 5 wave move and reverse, as it’s a trend reversal pattern.

However, if the price drops below 70.4 which might happen due to several reasons, interest hike risk, weakening the US Dollar, soaring oil and gas prices. Russia sealing gas export deals with other EU countries, then USD/RUB might proceed down to 68 and 67 as seen on a weekly chart below.

Chart by TradingView

In general, the weekly USD/RUB chart looks very bullish, so keep an eye on this pair.

The pressure on the US Dollar index is high as well, the most anticipated NFP data release today. These data will draw a further course of the US Dollar index, which has already tested a severe resistance zone at 94.3.

Chart by TradingView

The US Dollar index has formed an expanding diagonal, which completed it’s 5-wave move, hence a correction from this zone towards 93.4 and 92.4 is anticipated.

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