Russian central bank to stay on hold

Forex News and Events

Russia set to hold rates amid tensions with Turkey (by Yann Quelenn)

The Central Bank of Russia is meeting today and will likely decide to maintain its key rate unchanged at 11%. Officials are concerned about the still very high Consumer Price Index currently standing at 15% year-on-year. For the time being, there is no clear downside trend in inflation and the central bank is looking for more inflation supporting data to continue its easing cycle. There is not much room for Russia as high inflation and negative growth prevents any change in interest rates. The annualized advanced Q3 GDP printed at an alarming -4.1%.

Against the backdrop of the rate decision, tensions with Turkey are growing and we are wondering about the possible impact that could generate concerning Russian sanctions on Turkey’s economy. It is important to realise that Turkish GDP is expected to drop next year by 1% to 1.5% as tourism from Russia and vegetable exports should decrease revenues by at least a cumulative $15 billion knowing that the size of the Turkish economy is estimated at around $750 billion by the IMF.

For Russia, consequences would not be as dramatic as domestic tourism should benefit from those sanctions. Russian people could indeed favour to remain in their country. Nonetheless, inflation will face upside pressures but the current level is so high that a few basis points could be easily digested. Other investments between Turkey and Russia concerning gas will cease by January. They will be replaced by commodity investments towards China. As a result, we don't believe that Russia will suffer much from this decision.

On the medium-term, we are betting on a higher USDTRY and target 3.000 over 2016. The USDRUB is also oriented upwards as lingering commodity prices will keep weighing on the Russian economy. We target the pair to get back above 70.00.

Crude to remain low (by Peter Rosenstreich)

You would have to be hiding under a rock to have missed the news that oil prices have taken another leg lower. Increased worries of oversupply and clarity surrounding the Fed policy strategy were the primary catalysts for this week’s selling. On Friday, renewed supply glut speculation caused buyers to sideline oil prices, sending Brent to a six-year low of $39.50 bbl and WTI to $36.50 bbl. This sharp decline is the worst since March. Perhaps the strong argument for lower prices came from a chaotic OPEC meeting, which further undermined the credibility of the group. In what was flagged as a contentious meeting OPEC held production levels unchanged (approximately 31.5 bbl/ day, a number strangely omitted from the official statement) allowing members to pump crude in an already oversupplied market. The lack of unity was highlighted by UAE Oil Minister Suhail Al Mazrouei’s statement, "We are not going to go back to a cartel and work against the customers." Elsewhere, regime changes in Venezuela and Argentina to more globally friendly oil producers suggest that additional supply could hit the market.

On the demand side, a strong US labor markets report all but cemented the likelihood that the Fed will raise interest rates on December 16th. With rates raising in the US the USD is now expected to outperform, increasing the cost of crude for buyers. In addition, meteorological reports indicate that El Nino will lead to a milder than expected winter. Consumption of oil has been growing, yet data from the global economy hit below average trends in 2016 (led by tepid Chinese growth), with little hope of acceleration in the near term. With daily supplies estimated to have outstripped demand by as much as 2m barrels and stockpiles in developed nations reaching 3 billion barrels at the end of September, barring a supply shock it’s unlikely that crude prices will meaningfully recovery any time soon.

Crude Oil - Never-Ending Crash

The Risk Today

Yann Quelenn

EUR/USD has consolidated lower but the short-term momentum is now bullish. Hourly resistance can be found at 1.1043 (09/12/2015). Hourly support lies at 1.0796 (07/12/2015 low). Stronger support lies at 1.0524 (03/12/2015 low). Expected to target resistance at 1.1096. In the longer term, the technical structure favours a bearish bias as long as resistance holds. Key resistance is located region at 1.1453 (range high) and 1.1640 (11/11/2005 low) is likely to cap any price appreciation. The current technical deteriorations favours a gradual decline towards the support at 1.0504 (21/03/2003 low).

GBP/USD's medium-term downside momentum remains lively. The pair has stopped around 1.5200 before going lower. Hourly resistance is given at 1.5202 (10/12/2015 high). Stronger resistance can be found at 1.5336 (19/11/2015 high). Hourly support can be found at 1.4985 (02/12/2015 low). Expected to show further weakness. The long-term technical pattern is negative and favours a further decline towards the key support at 1.5089 , as long as prices remain below the resistance at 1.5340/64 (04/11/2015 low see also the 200 day moving average). However, the general oversold conditions and the recent pick-up in buying interest pave the way for a rebound.

USD/JPY is not confirming the bearish breakout and is back toward 122.00. Hourly support can be found at 121.08 (09/12/2015 low) while stronger support can be found at 120.07 (28/10/2015 low). Hourly resistance still lies at 123.76 (18/11/2015 high). Expected to bounce back toward resistance at 123.76. A long-term bullish bias is favored as long as the strong support at 115.57 (16/12/2014 low) holds. A gradual rise towards the major resistance at 135.15 (01/02/2002 high) is favored. A key support can be found at 116.18 (24/08/2015 low).

USD/CHF is heading downwards toward hourly support at 0.9876 (27/10/2015 low) while hourly resistance is given at 1.0034 (04/12/2015 high). Expected to show further decline. In the long-term, the pair has broken resistance at 0.9448 and key resistance at 0.9957 suggesting further uptrend. Key support can be found 0.8986 (30/01/2015 low). As long as these levels hold, a long term bullish bias is favoured.

Resistance and Support: