Yesterday's chart of the day examined the potential pricing changes Russia's suspension of natural gas deliveries to Poland and Bulgaria may have unless they pay for the energy commodity in rubles. Today's post looks at the likely impact on the Russian currency itself.
After its currency lost about 20% of its value at the start of Russia's invasion of Ukraine in late February, when NATO countries and other Western allies began leveling sanctions on Russia in retaliation for Moscow's aggression, the ruble has, surprisingly, recovered. That despite the fact that the RUB was pressured to an all-time low along with predictions the currency would continue sinking until a lasting ceasefire was in place.
The recovery was spurred in part by Russia barring its citizens from selling rubles to buy foreign currencies, which US Secretary of State Antony Blinken referred to as currency manipulation.
More recently, Russian President Vladimir Putin began demanding that customers of its natural gas, in particular European countries it supplies, must pay in rubles or see their energy supply halted. It's a potent threat given that 45% of European supply comes from Russia.
Yesterday, via Russian energy company Gazprom (MCX:GAZP), Moscow made good on that threat, halting exports to Poland and Bulgaria. Ostensibly the move was in response to increasing arms supplies to Ukraine from the US and its allies.
We, however, believe, the real reason is economic. Putin can only prop up his ailing currency for so long using his earlier tactic.
Though many fear Putin could escalate this move to include other European customer countries, the current move, along with any future escalation could hasten European initiatives to find other, less problematic suppliers.
For now, however, Europe's largest energy firms are falling in line, agreeing to buy the Russian currency with euros in order to pay for natural gas. Naturally, this move should boost euro-ruble, at the expense of the euro, at least in the shorter to medium term.
The EUR/RUB fell for a sixth straight day, the longest, most powerful losing streak for the pair we could find on the chart.
And at least based on the daily technicals, the pair is likely to continue lower.
The price completed a bearish pennant, whose implied target is a repeat of the previous sharp drop.
If that follows through, the price will have fallen below its long-term uptrend line since May 2015. Should that happen, the pair could keep falling, so that it would take more euros to buy fewer rubles, strengthening the value of the Russian currency at the expense of the single currency. But such moves can take a long time, if they even pan out.
Trading Strategies
Conservative traders should wait for the pair to pull a return move to retest the pennant's resistance.
Moderate traders would enter upon a corrective rally.
Aggressive traders could enter a long contrarian position after a six-day slide and as the price nears the uptrend line since the Apr. 17 low. Afterward, they'd join the rest of the market with a short, according to the guidelines for moderate trading risk.
Trade Sample – Aggressive Long
- Entry: 75.000
- Stop-Loss: 74.000
- Risk: 1,000 pips
- Target: 80.000
- Reward: 5,000 pips
- Risk-Reward Ratio: 1:5
Trade Sample – Moderate Short
- Entry: 85.000
- Stop-Loss: 86.000
- Risk: 1,000 pips
- Target: 75.000
- Reward: 10,000 pips
- Risk-Reward Ratio: 1:10