Crude Oil, USD/RUB Outlook : WTI Rising Before Fed, Biden-Putin Summit Volatility Risk
WTI, USD/RUB, Biden/Putin Talking Points:
- Oil continues its impressive run, gaining 2% on Tuesday and pushing above $72/bbl
- Joe Biden and Vladimir Putin are set to meet at the G7 Summit in Geneva on Wednesday
- USD/RUB at an inflection point, caught between strong oil and a potentially hawkish Fed
Crude oil has been on quite the tear of late, as global demand increases with more countries easing lockdowns and travel restrictions. The price of WTI rose nearly 2% on Tuesday to a two-year high despite markets being subdued ahead of Wednesday’s FOMC meeting. After being rangebound between $57 and $67 from February to June, the recent break above $67/bbl was enough to push WTI to fresh post-pandemic highs. While demand still has a long way to go to match pre-COVID levels, some commodity experts believe demand may be fully restored as early as 2022. Continued demand from economies reopening coupled with supply discipline from OPEC+ may propel WTI towards $80/bbl in the coming months.
WTI Crude Daily Chart
Chart created with TradingView
Along with the FOMC, Wednesday will see President Joe Biden meet with his Russian counterpart, Vladimir Putin, for the first time since assuming office. Relations between the two nations have been souring, with some comparing the dissonance to Cold War levels. Traders will listen closely to the tone struck by both leaders. Climate change, cybersecurity, nuclear weapons, and NATO will be the topics of conversation. Market participants will follow closely for any commentary on oil, the Iran deal, or sanctions.
The other major risk event on Wednesday is the FOMC policy meeting, where the central bank in the United States is set to leave interest rates unchanged. Markets will be looking to the FOMC statement for any mention of tapering, along with significant changes to the dot plot projection. Markets may get jittery on mentions of taper talk, as traders look to identify when the Federal Reserve may liftoff and also begin to unwind its massive balance sheet.
Recent oil strength has been a major catalyst behind the surge in the Russian Ruble over the last couple of months, as the commodity-linked RUB recently traded to levels against the US Dollar not seen since August of 2020. With stronger oil prices, USD/RUB traded down to the 50% Fibonacci Retracement level at 71.93, but a recent bounce ahead of the FOMC meeting could pave a path for a retest of the 61.8% point at 74.54. A hawkish surprise by the Fed could see USD/RUB bottom out, perhaps setting course to revisit peaks from early April. The direction of USD/RUB over the coming months will likely be determined by oil, potential sanctions from Washington, and/or a hawkish Federal Reserve. Until a catalyst becomes clear, USD/RUB’s drop into fresh 2021 lows could struggle to see follow-through.
USD/RUB Daily Chart
Chart created with TradingView
--- Written by Brendan Fagan, Intern for DailyFX
To contact Brendan, use the comments section below or @BrendanFaganFX on Twitter
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.