Ruble
EURRUB: Pair tradeI will be buying the Ruble with Euros since I think we have tremendous downside potential as well as excellent yields as a carry trade.
The setup is to determine size on each leg of the pair using 1 month ATR, or 3 times the daily ATR value, and then proceed to short the EURUSD and short the USDRUB pairs to profit from this juncture.
You could look for a technical setup, but in this case, it's a bit tricky to find a stop loss location for it, so I prefer to deal with no stops, and no leverage, and just trade it as a pair.
Good luck if taking this trade.
Cheers,
Ivan Labrie.
Short EURUSD/Long USDRUB, volatility adjusted, downside potential: 34.48, upside risk: 93.69
Brent Near-Term OutlookBrent crude has been able to rally on little volume during the U.S. banking holiday and rumors surrounding a potential unified OPEC production cut, issued by the UAE energy minister just as WTI was carving out a 12 year low (and in the middle of the night, local time, no less.)
Four days later, there has been no new reports of said production cut proposal, but something interesting has been reported by Charles Kennedy at Oilprice.com - " UAE Offers India Free Oil To Ease Storage Woes ."
There is still no reason why OPEC would cut production now given the distress its tactics are already causing in the U.S. shale space. To cave in now, OPEC's squeeze on U.S. shale would be a failure and U.S. shale would be a beneficiary.
The same UAE that sparked the latest crude short-squeeze has so much oil, it's bribing India with free oil in order to access a underground Indian storage facility to park abundant reserves. Go figure.
Despite OPEC's true unwillingness to cut production, the technical outlook for Brent could prove positive unless risk sentiment is turned off.
Currently testing price resistance at $33.81, Brent crude has found support at two key weekly support levels: $27.83 and $31.59. The ADX is showing a lack of momentum in the current move, but +/- DMI could, potentially, have a bullish convergence.
The growing tensions between Saudi, Turkey and Syria could reignite risk premium, but many analysts have suggest that any substantial premium is unlikely due to the current supply glut. Even so, resistance at the 50-day EMA coincides with a minor downtrend.
However, a break north could test $38.46 to $40.34. If price breaks down, Brent could easily retest $27.83, while more talk of not cutting production would send the international benchmark to $22.98.
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Russian Rubles are a buy. Short USDRUBAnother way to go long oil for a short term bear rally.
Short USDRUB (VIA long RUR single contract per $100,000 of capital) @ .01268 for contract or the equivalent of ~77.4 USDRUB
Risk is .67%
MACRO VIEW: USDRUB UPDATE: THE RANGE NARROWSUSDRUB continues to trade within borders we defined in our last update, however the range has narrowed. (see related idea)
As volatility compresses, and the price is trading between upper 1st standard deviation from 1-year mean and lower 1st standard deviation from quarterly mean, there current range now is 62-66.5
USDRUB is very correlated to WTI Oil, which is also now range-bound, so it is very likely that the Ruble will break away from its range when WTI Oil makes the first move
India Could Be the Most Resilient of the BRICSThe BRICS (Brazil, Russia, India, China and South Africa) are highly watched emerging markets because they represented roughly 22 percent of global GDP in 2014. However, the global economic slowdown and increased geopolitical tension has weighed heavy on these markets. Although, India may be the most resilient economy out of the BRICS.
India has felt its share of the slower economic climate, as the Markit manufacturing PMI fell to a seven-month low in September, falling to 51.2 from 52.3. According to Markit, there are signs of sustainable growth but input costs decreased for two months consecutively, which has not happen since the financial crisis. Both manufacturing and industrial output have remained stable. Services PMI has seen improvement since late 2014.
In relation, the Chinese manufacturing PMI clocked in at 47.2 and has been contracting since March while near the worst levels since March 2009.
Due to the slack in the economy and less than expected inflation, the Reserve Bank of India cut the benchmark rate by 50 bps to 6.75 percent. This strengthened the rupee has investors look for it to hinder capital outflow. It also comes as the People's Bank of China (PBoC) devalues the yuan.
USDINR is likely to fall further as I expect the dollar to remain weak following the onslaught of poor economic data. Friday's non-farm payroll print of 146,000 was well below the 201,000 general consensus. To add insult to injury, August's jobs number was revised lower by 50,000 which left mouthpiece economists in bewilderment.
The Fed's inability to act, in regards to an interest rate boost, will leave the dollar on shaky ground. Fed fund futures traders are not pricing in a potential for Fed action until June/July of 2016 - although, I am forecasting a recession by then.
The USDINR is trending within a descending channel with support at 65.28, but the pair will travel to the 50 percent Fib. retracement at 65.15 (with the 72-daily EMA as further support). Secondary target is 64.83.
Resistance can be found at 65.6060, 65.8337 and 66.1374
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MACRO VIEW: RUSSIA'S OIL PRICE POLICYWTI Oil measured in Russian Rubles reveals some hidden truth behind USDRUB rate against the background of falling Crude prices.
The idea of Ruble devaluation is to hold oil price measured in Rubles within 1st standard deviation from 1-year mean. (current target range is thus 2800-3475 Rubles per barrel)
Basically such policy creates PERCEIVED budget stability, In fact, in Rubles WTI Oil now is very close to 2008 peaks!
What this policy fails to cover is, of course, in-house inflation in Russia due to Ruble depreciation, triggered by very large import factor in Russia's trade balance.
The Russian ruble might come back under pressure soonPeople are starting to talk about the Russian ruble again after 3 months of practically no chatter on the Twittersphere following the December RUB crisis. Amazingly, the ruble is one of the best currencies in 2015. Given the poor fundamentals in the Russian economy, I'm starting to become a bit skeptical on the potential for further USDRUB losses over the medium term (I told my Russian friends in December to hold tight and to NOT start converting to USD as there would likely be a bounce at the start of 2015 on people stopped talking about the RUB on CNBC). Looking at the USDRUB daily chart, I note that the RSI is in oversold territory for the first time since May 2014. At the same time, the USDRUB is about 100 pips from its 200-day moving average (49.47). I'd be looking for support and signs of bottoming somewhere between 47.70 (prior resistance in November) and 49.47. That said, I don't really believe that this pair is one that should be traded, and I'm not personally looking for any exposure here. I just think that the chart is interesting at a time where people are starting to talk about how much the ruble is bouncing back this year.
WTI Consolidates on WeaknessIn my previous analysis "Que 2008," I likened this drop in oil similar to the one we've seen in 2008. This was based on both over leverage in the oil and equity markets, diverging fundamentals and a strengthening dollar throughout 2009 - which brought on deflation.
Prices did collapse through $60 as expected, and nobody is willing to cut production to reserve market share. The UAE Energy Minister said $40 oil is quite possible and nothing to worry about within a three-month period.
The problem is, whether it's OPEC nations or US shale producers, lower prices will cause ongoing degradation of the sector.
US energy CAPEX looks to be reduced significantly (2/3 CAPEX in S&P500), as producers are already cutting jobs, future CAPEX and turning rigs offline - as we seen in 2008.
Some have hope that these moves will help position companies for a bounce back. However, I liken that to companies cutting jobs and buying back shares to boost earnings. It doesn't work in the long run.
Without demand, oil will remain much lower than previously seen. Limited growth in the US and emerging markets and no growth in Europe is setting the stage for subdued prices.
If WTI closes below $53.50 per bbl, I expect technical "trap door" selling, and we could see mid-$40s per bbl.
Conversely, a close above $59 could send prices to $65 per bbl in order to re-balance to sharp decline. However, if fundamentals remain weak, support will remain weak.
