- Western sanctions, including oil price caps and a ban on crude oil purchases, are reducing Russian export earnings and potentially increasing the budget deficit.
- The Russian ruble fell significantly against the dollar, putting upward pressure on inflation and potentially requiring the Bank of Russia to reintroduce interest rate hikes.
- These economic challenges, combined with declining energy revenues, are expected to lead to a contraction of the Russian economy in 2023 and put pressure on its balance sheets.
- The dollar/ruble has been in an upward channel since December 2014, suggesting that the previous momentum of the ruble’s strengthening is reversing
- The dollar has formed a triangular bottom against the ruble, which coincides almost perfectly with the low of the range since April 2015 and the long-term uptrend line since the 1990s.
- The pair has completed a pennant, with a strong rally promising a repeat performance and a potential 100,000 pip rally from the 71.0000 breakout point towards the 81.000 level.
Western sanctions against Russia for its invasion of Ukraine have a significant impact on the country’s economy. Oil price caps and bans on oil purchases by the G-7 countries, the European Union and Australia are reducing Russian export earnings and potentially increasing the budget deficit. Price caps on Russian exports of crude and refined oil could force the Kremlin to cut production by 5% and 7% next year.
The also fell significantly against the US dollar, putting upward pressure on the due to higher import costs. The may have to reintroduce interest rate hikes to keep theinflation. These economic challenges, coupled with declining energy revenues, are expected to lead to a contraction of the Russian economy in 2023 and strain its budgets.
There is a risk that a major external rebalancing will be needed in 2024, which will slow down growth. The current account surplus, which has been a key pillar of the Russian economy this year, is expected to “reduce rapidly” in the coming months. Despite these challenges, Moscow should be able to finance any shortfalls through national bond issuance and its hard times fund, officials said.
Technical analysis
The dollar-ruble has broken an ascending channel since December 2014, suggesting that the previous momentum of the ruble strengthening to its strongest level in seven years is being reversed. The rebound occurred after approaching the historic uptrend since the 1990s.
The Russian ruble recorded a significant increase in value between February and June thanks to the high demand for the country’s energy exports, especially oil and gas, which contributed to economic growth.
Despite the sanctions imposed by the EU and the US in response to Russia’s invasion of Ukraine, the EU, Russia’s main customer for these energy sources, continued to buy billions of dollars of Russian energy every week. Capital controls implemented by the Russian central bank have also supported the ruble by reducing purchases of foreign currency in the country.
However, on September 16, 1992, George Soros demonstrated that even an economically powerful country like Great Britain could not artificially support a long-term currency. Are we seeing Russia fail to do the same?
Here we see that the dollar has formed a triangular bottom against the ruble, but the most significant aspect of the range is that (1) it coincides almost exactly with the bottom of the range since April 2015 and (2) with the long-term uptrend line period since 1992.
The implied target, based on bottom height, is 14.5 from the breakout point of 65, with a target of 79.5.
Finally, the pair completed a pennant yesterday, which is retesting today, so far successfully.
The strong rally that created the give and take between buyers and sellers that constitutes the pennant promises to repeat itself, with a 100,000 pip rally from the 71.0000 breakout point towards the 81.000 level.
trading strategies
Conservative traders should wait for the price to close above 72.5000, then retest the pennant support.
Moderate traders would be content with an effective show of support after breaking above the 72.5000 level on an intraday basis yesterday.
Aggressive traders can enter now, provided they accept the higher risk, commensurate with the higher reward, of beating their more cautious pending peers.
Trade Example – Aggressive Long Position
- Revenue: 71.0000
- Stop-Loss: 70,0000
- Risk:10,000 pips
- Goal: 81,000
- Reward: 100,000 pips
- Risk-Reward Ratio: 1:10
Sanctions, recession, ruble: Russia’s next challenge | Investing. com