Go short RUB vs the EUR and USD basket - Nomura

Henrik Gullberg, Research Analyst at Nomura suggests to go short on RUB vs the EUR (45%) and USD (55%) basket, currently at 62.90, target 65.75 (a return to August highs), with a stop at 61.65 (below the Oct lows of around 61.90).

Key Quotes

“Alternatively, and if you are more positive on USD vs EUR, we recommend buying a 3m USD/RUB 59.50 call with a 63.50 KO for an indicative 0.47% of notional (spot ref: 58.8).”

“There is scope for unwinding long RUB positions. The latest CFTC data show that investors have rebuilt their long RUB positions, not to the extremes of earlier this year, but still represent a sizeable RUB long. At the same time crude oil longs have been rebuilt and are reaching new all-time highs.” 

“Seasonal support for RUB deteriorates over November-January, reflecting larger external debt payments, which are highly concentrated in December, and also possibly rising imports, as the winter months approach.”

“New financial sanctions against Russia are another risk if the ongoing Mueller investigation finds evidence of a comprehensive attempt by Russia to affect the US elections via contacts with officials, hacking, etc.”

“There may be increased RUB volatility in early-2018 as a US Treasury report on the potential impact of expanding US sanctions on Russian sovereign debt is to be published by the end of January 2018.” 

“A new mechanism for calculating the amount of excess budget revenues to be converted into FX (revenues exceeding those corresponding to 40 USD/bbl) is another factor that could contribute to a weaker RUB from early next year. This will come into effect from January 2018 and at current levels suggests a significant increase in FX buying compared with this year.” 

“Taken together, we think RUB is not priced relative to these risks and we see scope for the RUB basket to return to around 66 over the next few months.”