USD/RUB Forming Bullish Flag on Monthly Chart

- The USD/RUB has formed a bullish pennant pattern on its long-term chart

- A break above 65.00 would be key to the outlook

- The meeting of the Federal Reserve and Russian PMI data dominate fundamentals

USD/RUB has been in a flat, sideways, consolidation zone since April, which has ping-ponged between a floor in the 60.50s and a ceiling at 64.30ish.

On the monthly chart below, the sideways move and the rally prior to it have formalised into a bullish chart pattern which indicates higher prices on the horizon.

The Fed meeting on Wednesday and Russian Services data on Friday may provide catalysts for a breakout from the technical pattern, as may geopolitical factors or the price of oil - Russia's principle export.

On the monthly chart USD/RUB has formed what looks like a clear bullish pennant pattern.

Bullish pennants tend to rise to an upside target calculated using the length of the 'pole' - that is the steep rally prior to the consolidation - extrapolated from the breakout higher.

A conservative estimate can be generated using the golden ratio of pole, or 0.618, a  mathematical constant which govern's proportionality in many natural phenomena and market prices.

A break above the 64.99 April highs would provide breakout confirmation, with a target at 67.35.

The RSI momentum indicator in the bottom panel has been flat after the surge in April and looks bullish - a falling RSI from here out simply wouldn't look right, and is seems unlikely to us.

Since price and RSI are usually in sync when momentum is strong a rise in the RSI suggests a rise in the underlying asset price too, which provides further corroborative evidence for the bullish outlook.

On the fundamental front, the main market-moving data release for the pair is the meeting of the US Federal Reserve this evening at 19.00 B.S.T.

Many analysts have said they are sceptical as to whether this particular meeting will cause any volatility because the Fed is widely expected to leave interest rates unchanged. The lack of a press conference and updated forecasts are further reasons not to expect much change.

Some, however, have said the meeting will provide important guidance on whether the Fed is likely to raise interest rates twice as is currently expected or only once.

A suggestion that conditions are ripe for a rate rise in September would be a bullish sign as it would indicate the probability of two more rate hikes in 2018 rather than just one, and this could boost the Dollar.

For the Rouble, Wednesday saw the release of  Russian manufacturing PMI which showed further signs the sector was contracting.

The data fell to 48.1 in July from 49.5 in June. It was the third month in a row the result came under 50 which is the difference between expansion and contraction.

"The decline in production was linked to weaker client demand and a fall in new orders," says compilers of the survey IHS Markit.    

Confidence fell to a 7-month low, says the report.

“In line with an overall downturn in the sector, the degree of optimism among manufacturers dipped to a seven-month low,” says Sian Jones, economist at IHS Markit.

Manufacturers said they were mostly unable to pass on higher input costs to clients because of lack of demand, which was squeezing margins.

The Rouble's weakness was one reason input costs, including raw materials, was rising.

Another major release for the Rouble this week is Services PMI at 07.00 B.S.T on Friday, August 3, which stood at 52.3 in June. Consensus estimates are unknown.

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