USDRUB: "This is 40"

A few years ago, I found myself in a common 21st century dilemma: I was staring at the RedBox display at our local convenience store, trying to decide among the (underwhelming) choices to rent for Friday movie night with my then-fiancé. Sensing my misgivings with the lackluster selection, she quickly took control and chose the movie This is 40, which turned out to be a worthwhile-if-predictable-pseudo-sequel-to-the-far-superior-prequel Knocked Up.

Perhaps some Russian forex traders were more impressed with this movie than I was, as it seems like USDRUB is determined to reach its own 40 level sooner rather than later. We last mentioned the pair two weeks ago as rates broke to a new all-time high above 37.50 (see “EM Rundown: USDRUB Blasts Off as Ukraine Ceasefire Starts to Fray”), but the rally has continued unabated since then.

The latest bearish-ruble catalyst is growing unease about capital controls to stem the outflow of funds from the country; for the uninitiated, capital controls are measures enacted by a government or central bank to prevent citizens and foreigners from withdrawing money from the country. Common examples of capital controls include taxes, tariffs, volume restrictions, and outright prohibitions on removing capital from the country. Not surprisingly, fears of these future limitations have led investors to preemptively sell Russian assets and drive the ruble lower.

Technical View: USDRUB

Looking to the chart, USDRUB broke out from a potential bullish flag pattern on Friday. This brief consolidation shows that buyers are still in control of trade and projects a potential bullish target up near 40.75. The other technical evidence is also supportive of further gains, with rates still above their 3-month bullish trend line and rising 50-day moving average. Meanwhile, the MACD remains in an upward trend higher above its signal line and the “0” level, showing strongly bullish momentum, while the RSI continues to oscillate in and out of overbought territory (>70).

Whether or not there is any truth to the rumors about capital controls in Russia, the USDRUB rally could easily stretch the 40 level in the next week or two. Above that, the bullish flag pattern’s measured move target near 40.75 could come into play. That said, a break below bullish trend line support around 38.00 would cause traders to reconsider their bullish bias.

Finally, if capital controls are instituted and ruble traders panic, we could be starting our USDRUB articles with references to movies like 47 Ronin or 50 First Dates!