Soft wage growth, marginally higher-than-anticipated unemployment rate, and decline in the UoM (University of Michigan) consumer sentiment reading (preliminary) weakened the US dollar against the Russian Ruble in early February. The USDRUB pair’s downtrend was also aided by a higher than anticipated trade surplus in December and four and a half year low inflation rate of 5% in Russia. However, after touching a low of 56.20, the USDRUB pair quickly bounced back above 57. We anticipate the USDRUB to exhibit a bullish reversal in the days ahead due to the reasons provided below.
According to a preliminary estimate from the Russian Federal Statistics Service, the economy contracted 0.2% in 2016. While it was better than analysts’ estimates of a 0.5% contraction, still, an economic turnaround is not yet confirmed. The consumption continues to remain weak as indicated by a 3.6% drop in the wholesale and retail trade.
Russia has emerged out of recession in 2016 and the economy is expected to expand by 2% in 2017. However, the country is still largely dependent on projects related to natural resources for growth and development. This opinion was echoed by the Russian Prime Minister Dmitry Medvedev last month at the Gaidar Economic Forum. Medvedev stated that technological backwardness and high dependence on commodities are the main issues faced by the Russian economy.
In the case of the US, the economy continues to perform reasonably well. According to the US Census Bureau, the building permits in January increased to 1.29 million, from an upwardly revised 1.23 million in December. Analysts had expected the new building permits to be equal to the December figure. The data indicate that 2017 has begun well for the US construction sector.
Likewise, the Federal Reserve Bank of Philadelphia reported a strong rise in the manufacturing index reading to 43.3 in February, from 23.6 in the prior month. The market had expected a decline in the manufacturing index reading to 18.5. Nearly 48% of the surveyed firms reported an increase in activity, compared with 40% last month. Furthermore, 44% of the surveyed firms confirmed an increase in order intake, while only 6% reported a decrease in orders. Meanwhile, the Department of Labor announced a marginal rise in the unemployment claims to 239,000 for the week ended February 11, from 234,000 reported in the prior week, but lower than analysts’ estimates of 243,000 claims. Thus, considering the above details, we anticipate a rally in the USDRUB pair soon.
The USDRUB pair has bounced off the support at 56.90. The money flow index is rising. This means that market is adding up long positions in the USDRUB pair.
So, in line with the primary trend, a long position can be taken by a Forex trader near 57.80 to capitalize on the probable uptrend of the currency pair. Placing a stop-loss order below 57 would enable a trader to control losses from an unexpected rise in volatility. A profitable exit from the trade can be made near 59.20.
On the basis of the forecast, a binary trader can trade a call option to earn an ROI (return on investment) of about 72%. The trade can be opened when the USDRUB pair trades near 57.80. The trader should also opt for an expiry period of one week for the suggested contract.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
