When will the ruble bleeding stop?

December 1, 2014 09:27 AM

After sliding over 9% against the U.S. dollar last week, the ruble started this week cowering on the ropes.

Sensing blood, traders have delivered the proverbial knockout punch today, driving the currency down another 6% at one point all the way to nearly 54.00 on USD/RUB. Indeed, the ruble (CME:R6F15) has fallen by a staggering 40% against the world’s reserve currency thus far this year, forcing Russia’s central bank to abandon its managed exchange rate and shift to a free-floating currency last month.

Earlier this year, ruble selling was driven by geopolitial uncertainty, but collapsing oil prices in the wake of Organization of the Petroleum Exporting Countries's decision to leave oil production unchanged, despite calls by some members to cut output, has been the most prominent catalyst for the current leg lower. Logically, the precipitous drop in the Mother Country’s primary export should lead to a weaker currency, but traders the world over are wondering, “When will the bleeding stop?”

Source: FOREX.com

The most straightforward answer to that question is clearly “when oil prices stop falling,” and today’s price action in oil is giving ruble bulls a glimmer of hope on that front. As we go to press, Brent crude oil (NYMEX:SCF15) is putting in a Bullish Pin*/Piercing** Candle on the daily chart, showing a shift from selling to buying pressure and opening the door for a more meaningful bounceback later this week. Brent’s 14-period RSI is also turning up from oversold territory, raising the likelihood of a bounce from here.

* A Bullish Pin (Pinnochio) candle, also known as a hammer or paper umbrella, is formed when prices fall within the candle before buyers step in and push prices back up to close near the open. It suggests the potential for a bullish continuation if the high of the candle is broken.

**A Piercing Candle is formed when a candle trades below the previous candle's low, but buyers step in and push rates up to close in the upper half of the previous candle's range. It suggests a potential bullish trend reversal.

Source: FOREX.com

Not surprisingly, this reversal in oil prices has also taken USD/RUB off its intraday highs to trade back below 52.00 as of writing. If Brent can build on today’s gains, or at least stabilize near above the $70 level this week, then the ruble could stage a short covering rally as traders turn their attention to other matters, including Wednesday’s UK Autumn Statement, Thursday’s ECB meeting, and Friday’s U.S. Non-Farm Payroll report. That said, the trend (as shown by the daily MACD below) remains strongly bullish on USD/RUB for now, so the medium-term trend will continue to favor ruble weakness above last month’s high at 48.60.

About the Author

Senior Technical Analyst for FaradayResearch. Matt has actively traded various financial instruments including stocks, options, and forex since 2005. Each day, he creates research reports focusing on technical analysis of the forex, equity, and commodity markets. In his research, he utilizes candlestick patterns, classic technical indicators, and Fibonacci analysis to predict market moves. Weller is a Chartered Market Technician (CMT) and a member of the Market Technicians Association.