EUR/RUB: Euro to weaken further under 86.000 – MUFG

Analysts at MUFG Bank have a trade idea of shorting the euro against the Russian ruble. They see a open level at 86.150 with a target at 83.000 and a stop-loss at 88.000. According to them, market conditions appear favourable for carry trades in the near term.

Key Quotes

“The long RUB leg is to take advantage of favourable conditions for carry trades. Near-term concerns over the potentially disruptive market impact from ECB and Fed tapering have eased for now. USD/RUB volatility has continued to decline recently as it moves back to lower levels that were in place prior to the COVID pandemic. The RUB has become more attractive as a carry currency as the CBR has tightened policy aggressively.”

“The main risks to the long RUB position are posed by a deeper slowdown in global growth, correction lower in the price of oil, and/or renewed geopolitical tensions between Russia and the West.”

“We have chosen the EUR as the funding leg. Short-term yields in the euro-zone remain firmly anchored by the ECB’s strengthened forward rate guidance. Even the ECB’s decision to moderately slow QE purchases in Q4 has triggered only a limited positive reaction for the EUR.”

“We expect the EUR to weaken further against the RUB if the pair breaks below key support at 86.000-level where the lows from June and August are located.”