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Going Long USD/RUB Again

January 28, 2015 (Last updated on February 16, 2015) by

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:

USD/RUB - Going Long with a Long-Term Target of 100

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 CHF trade is still going strong. USD/RUB has failed to go above its January high of 71.87:

USD/RUB - After Stop-Loss Exit

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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