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Eight month high new home sales turn Greenback bullish

Despite weakness in the price of crude oil, the Russian Ruble rallied against the Greenback for the past one month.

Since March 15th, the Ruble had gained about 7% to trade at 56.10 against the US dollar. After seven quarters of contraction, the economy had expanded for the first-time in the fourth-quarter of 2016. The GDP grew 0.3% q-o-q, aided by a 3.7% increase in exports.

However, we believe that the Ruble’s rally is over for the time being and the US dollar would begin its uptrend shortly.

Russia’s economic expansion in the fourth quarter was mainly due to an increase in inventory investment and lower than anticipated decline in consumer spending. This is evident from the March retail sales data. The latest data from the Federal Statistics Service indicates that retail sales declined 0.4% on y-o-y basis.

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In an interview with Anadolu Agency, Tatiana Isachenko, professor at MGIMO University in Moscow, stated that the country is yet to recover from the economic crisis and economic issues are largely managed using the previous savings. According to economists, a 4.2% and 3.5% decline in the construction and service sector reflects the issues faced by the economy. Furthermore, analysts argue that the prevailing high interest rate of 9.75% is yet another obstacle for economic growth.

In a recent poll conducted by Reuters, the Russian economy is expected to grow 1.1% in 2017. It is below the official growth outlook of 2% issued by the Russian government.

Likewise, inflation is seen at 4.2%, versus Central bank’s target of 4%. Dmitry Dolgin, macro strategist at Gazprom bank, cautioned that the marginal increase in consumer demand and weak Ruble is expected to create inflationary pressure. Finally, the weakness in the crude oil, which is the main export revenue earner for Russia, is also expected to keep the Ruble under pressure.

In the US, new home sales grew 5.8% m-o-m to 621,000 in March. The eight month high data surpassed analysts’ estimates of 590,000. Notably, the new home sales have increased 15.6% above the March 2016 estimates of 537,000. Thus, fundamentally, the USD/RUB pair is expected to rise in the short-term.

Technically, the USD/RUB pair is expected to move up due a strong support that exists at 55.80. Technically the rising stochastic oscillator confirms the underlying bullishness. So, it would be wise to buy the Greenback in exchange of the Ruble at this point in time.

USD/RUB Pair: April 28th 2017

USD/RUB Pair: April 28th 2017

A currency trader can open long position near 56.80, with a stop loss order below 55.40, to realize returns from the impending uptrend. The profit for the suggested trade can be booked near the next major resistance level of 58.80.

Likewise, a high or above option can be bought from a binary broker to gain from the forecasted uptrend. The trader can select May 7th as the expiry date and invest when the pair trades near 56.80 in the OTC market.


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