CNH/RUB: Further Increase Is Possible If Ruble Weakens Against Yuan
IFC Markets | Apr 24, 2017 08:22AM ET
Decline in oil prices may weaken the ruble
In this report, we recommend considering the personal composite instrument (PCI) yuan against the ruble . It reflects the dynamics of the Chinese yuan against the Russian ruble. The PCI may grow if the ruble weakens faster against the U.S. dollar compared to the similar dynamics of the yuan.
The main negative factors for the Russian currency are the decline in world oil prices and the expectations of reduction of the benchmark rate of the Central Bank of the RF. The sale of hydrocarbons accounts for about 70% of Russian exports.
Oil prices decrease on the background of the peaceful settlement of the North Korean crisis. The U.S. decided against a military operation against the DPRK and opted for just economic sanctions. In March of this year, China and South Korea increased oil imports by 7% and 10.2%, respectively, because of political risks. Probably, they will slightly cut it now. Besides, the U.S. continues to increase the active rigs count for the 14th week in a row. This may contribute to the growth of oil production as well.
The Ministry of Economic Development of the RF forecasts inflation at the level of 4.2% in Russia, in April, which may prompt the Central Bank of the RF to a further decline in the benchmark rate. Currently it is 9.75%. In its turn, China has recently demonstrated an improvement in economic indicators, which may prevent the weakening of yuan. Particularly, in Q1, 2017, the GDP growth picked up to +6.9% year-on-year compared to 6.8% in Q4. The Chinese industrial production also rose to +7.6% in March, 2017 on year from 6.8% in February.
On the daily timeframe, CNH/RUB: D1 is in the falling trend. Currently, it is trying to correct up. The further increase is possible if the ruble weakens against yuan.
- The Parabolic indicator gives bearish signals. It may be used as an additional resistance level, which should be overcome to open a buy position.
- The Bollinger bands show ordinary volatility.
- The RSI indicator is below 50. It has formed a positive divergence.
- The MACD indicator gives bullish signals.
The bullish momentum may develop in case CNH/RUB exceeds the resistance line of the downtrend, the last fractal high and the Parabolic signal at 8.33. This level may serve as the entry point. The initial stop-loss may be placed below the three last fractal lows at 8.06. After opening the pending order, we shall move the stop to the next fractal low following the Bollinger and Parabolic signals. Thus, we are changing the potential profit/loss to the breakeven point.
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More risk-averse traders may switch to the 4-hour chart after the trade and place there a stop-loss moving it in the direction of the trade. If the price meets the stop level at 8.06 without reaching the order at 8.33 we recommend cancelling the position: the market sustains internal changes that were not taken into account.
Summary of technical analysis:
Position: Buy
Buy stop: above 8,33
Stop loss: below 8,06
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