Ruble to strengthen on decline in Unemployment rate

Lower than expected unemployment claims in the US enabled the Greenback to rise sharply against the Russian Ruble in the second week of July. From a low of 61.85, the USD/RUB pair rose to a high of 67.289 in a matter of two weeks.

The Ruble was also weakened by a decline in the price of crude oil to about $39 per barrel. However, mixed economic data from the US and uncertainty about the Fed rate hike has considerably weakened the US dollar in the past ten days. Still, we believe that the downhill journey of the USD/RUB pair is not yet over due to the following reasons.

USA TODAY

The Federal State Statistics Service of Russia reported that business confidence index reading increased to -3 in July, from -4 in June 2016. Similarly, the unemployment rate in Russia stood at 5.3% in July, against 5.4% in June. It is the lowest recorded unemployment rate since September 2015. In June 2016, the trade surplus of Russia increased to $8.1 billion and exceeded the analysts’ expectation of $7.46 billion. It was the largest trade surplus recorded since December 2015. The Markit Russia’s PMI (Purchase Managers Index) reading was 55 in July, compared to 53.8 in June.

On the other hand, In the US, the core retail sales declined unexpectedly by 0.3% in July, against the market’s expectation of a 0.2% rise. Similarly, the Bureau of Labor statistics reported a 0.3% decrease in the core PPI (Producer Price Index) in July.

Again, the market was anticipating a 0.2% rise in the core PPI. The core CPI (Consumer Price Inflation) also fell 0.1% in July, compared to the market’s expectation of 0.2% growth. The market participants also believe that there is only a slim chance of a rate hike in the current quarter. Thus, we anticipate the Ruble to strengthen further against the Greenback.

The currency pair remains bearish as indicated by the MACD indicator, which is moving below the zero line. The resistance for the USD/RUB pair exists at 64.10. On the downside, support exists at 62.60. Based on the prevailing price of 63.85, we can argue that the path on the downside faces minimum hurdles.

Thus, a short position can be opened at about 64 to benefit from the predicted downtrend. A stop loss order above 64.40 can prevent huge losses. If the forecast goes true, then the profit can be booked near 62.60.

To gain from the forecasted downtrend, a forex trader can choose a one touch put option to trade with. For better chances of success, the target level for the put option should be about 63, while the contract termination date should be in the third-week of September. Looking for a way to get the upper-hand in the market, why not have a look at out dedicated forex strategy section.