What does USDRUB Have in Common With a Thanksgiving Turkey?

In 2007, Nassim Nicholas Taleb published his revolutionary book “The Black Swan” about the eponymous theory, which posits that rare, unpredicatble events have a massive impact and can only be rationalized after the fact. Taleb’s most iconic example of a black swan event comes from the perspective of a Thanksgiving turkey.

About this time of the year, Thanksgiving turkeys across the United States are feeling pretty lucky: they have humans who regularly give them far more food and water than needed to survive, along with regular vaccinations to protect them from any diseases or maladies. Based on past events, the turkey has no reason to believe that it will soon be slaughtered for food, abruptly ending its pampered existence. Only after the fact is it obvious that the food, water, and vaccinations were intended to fatten the turkey up and maximize its nutritional and monetary value.

While not a true Black Swan event, USDRUB bulls feel a bit like the proverbial Thanksgiving turkey today. For months, rates have been grinding consistently higher, each day reinforcing the belief that the uptrend would continue indefinitely. Unfortunately for USDRUB bulls though, the slaughter arrived today.

Though it hasn’t been confirmed, it looks like the Russian central bank intervened in the market to buy rubles midway through today’s European session. This selloff in USDRUB was then exacerbated by fears that the central bank would reinforce the move by raising interest rates aggressively in tomorrow’s monetary policy meeting. In retrospect, it appears obvious that the Russian authorities would eventually reach their threshold for a weakening currency, though that exact “uncle” point was impossible to determine in advance.

Technical View: USDRUB

At this point, most traders may want to avoid trading USDRUB until after tomorrow’s highly unpredictable CBR meeting. That said, we can still identify the key levels and trends to watch ahead of the meeting. Despite today’s big drop, which formed a large Bearish Engulfing Candle*, USDRUB remains above support from its accelerated trend line at 41.00; even if that floor is broken, more support could emerge around key psychological support at 40.00 or the other bullish trend line at 39.40. Meanwhile, both the MACD and RSI indicators remain in bullish territory, though they look far more vulnerable than they did 24 hours ago. If the CBR fails to tighten policy dramatically, the longer-term uptrend could resume for a rally back toward the all-time high at 43.00.

*A Bearish Engulfing candle is formed when the candle breaks above the high of the previous time period before sellers step in and push rates down to close below the low of the previous time period. It indicates that the sellers have wrested control of the market from the buyers.

Source: FOREX.com