Expecting the reaction of the oil market to the OPEC decision
In this review, we suggest considering the personal composite instrument (PCI) “BRENT oil against the Ruble”. It reflects the dynamics of the price change of a barrel of Brent oil against the Russian currency. Will the BRENT/RUB quotes decrease?
The PCI declines when oil decreases in price, while the Ruble strengthens against the US dollar, and, vice versa, the it grows when oil rises in price, while the Ruble drops. Such trends, as a rule, do not last long. The fact is that the relative weight of fuel and energy products in the Russian export is traditionally high. In January-September 2017, it amounted to 65.2% in the countries of the far abroad (62.5% in January-September 2016). An increase in oil price strengthens the Ruble against the US dollar and vice versa. As a result, the BRENT/RUB chart tends to oscillate around its midline. Currently, it has markedly deviated from the midline and, theoretically, there may be a downward correction. The unusually strong growth of the PCI was contributed by the growth of the world oil prices for more than a quarter in the 2nd half-year period of this year. At the same time, the strengthening of the Russian ruble was not so significant on the background of the anti-Russian economic sanctions. The dynamics of the world oil market may be affected by the results of the OPEC meeting on November 30, 2017.
On the daily timeframe, BRENT/RUB: D1 remains in the rising trend, but its growth has slowed down and some technical analysis indicators formed Sell signals. Downward correction is possible in case of the publication of positive economic and corporate information in Russia, as well as in case of an increase in the world oil production and a decrease in its price.
- The Parabolic indicator gives a bearish signal.
- The Bollinger bands have widened, which means higher volatility.
- The RSI indicator is above 50. No divergence.
- The MACD indicator gives a bearish signal.
The bearish momentum may develop in case BRENT/RUB drops below the last fractal low at 3755. This level may serve as an entry point. The initial stop loss may be placed above the two last fractal highs, the 2.5-year high and the Parabolic signal at 3925. After opening the pending order, we shall move the stop to the next fractal high 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 at 3925 without reaching the order at 3755, we recommend cancelling the position: the market sustains internal changes that were not taken into account.
Summary of technical analysis
|Sell stop||below 3755|
|Stop loss||above 3925|
Market Analysis provided by IFCMarkets