Going Long USD/RUB Again

I did not advertise my previous USD/RUB position because my original intention was just to hedge some of my currency risks. It resulted in the most successful trade in my Forex career. This time, I have decided to re-enter the long based on a number of factors and with double purpose — profit and hedging. Following its December 15 collapse, the Russian currency has managed to recover a lot of its losses during the remaining days of 2014. However, it is in a steady upward trend since December 26. Here is why I am buying USD/RUB again:

  • Escalation of the conflict in the Eastern Ukraine will take its toll on Russia.
  • The Russian economy has to repay more than $32.3 billion of external debt during February-March period. That is more than $30.2 billion it repaid in December.
  • S&P has cut the Russian sovereign credit rating to BB+ with a negative outlook. Investors consider such a grade to be a junk level. The last time S&P assigned this rating to Russian debt was in 2002.
  • Europe and the USA are planning on introducing new sanctions on the Russian Federation.
  • There is no bounce in oil prices on the horizon (e.g. consider this news.)
  • There is a significant support level, which is not too far away from the current rate — 62.71. I am using it as a stop-loss.
  • Hedging factor. RUB is somewhat correlated with UAH, so a long in USD/RUB allows me to hedge some of my UAH savings.
  • Cutting Russia from SWIFT is not a real possibility for the near future, but the talks about such possibility will certainly press on the ruble.
  • Of course, this trade is not ideal considering some of the downside risks:

  • All of the above risks may already be priced in, though I very much doubt that.
  • Unlike my recent NZD/CHF trade, this one will cost me a lot in terms of overnight swaps. It is better not to turn this position into a long-term trade.
  • The latest uptrend wave is already a month old — the currency pair may just stop for a significant technical correction.
  • Nevertheless, I believe that now is a good time to go long USD/RUB, hence my position:

    The take-profit level at 100 is a spike target. I will use a trailing stop of about 5–7 rubles as my main exit.
    Update 2015-02-16: The trade has hit its stop-loss at 62.71 today. It looks like the ruble is getting a lot of support from the expectations surrounding the latest Minsk agreements. Luckily, my NZD/CHF trade is still going strong. USD/RUB has failed to go above its January high of 71.87:

    If you have any questions or ideas regarding the current situation with the Russian ruble in the Forex market, please feel free to post them using the commentary form below.

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