For many, today's news of an escalation in tensions in Eastern Europe after Russia's President, Vladimir Putin, ordered troops to move into Ukraine would certainly appear to make the case for an ongoing slump in the Russian ruble. So shorting the currency now would be a smart move, right? Not in our view.
The politics surrounding today's developments have been in play for a while. Though the UN strongly condemned Russia late yesterday in New York for the troop deployment, the US had already imposed some sanctions on the separatist regions of Ukraine that Putin yesterday 'recognized' as 'independent states.' Furthermore, the White House has indicated that additional harsher measures by the US and its Western European allies will be announced later Tuesday.
As well, since the outbreak of the pandemic, the Russian ruble has been tumbling. The most recent geopolitical developments have pressured the currency to historically low levels against the dollar.
But while the news of a possible all-out war might suggest further weakness for the Russian currency, we believe any concessions Russia might make going forward could be considered bullish for its currency. Longer term technicals are confirming that view.
The USD/RUB pair peaked above the 80.0000 earlier today, returning to Oct. 30, 2020, high before retreating, potentially forming a Shooting Star. This one-candle pattern demonstrates a bearish response signaling bulls have been beaten back.
But the broader technical view indicates a potentially more bullish story for the ruble.
The pair has been trading within an ascending triangle since the December 2014 high. This structure is a continuation pattern when it develops over weeks or months, though not necessarily if it forms over many years as is the case here.
However, if the price does make new highs, there is a chance that some investors will be aware of this resistance failure. Their interest could become support, pushing the price yet higher. For now, however, traders should treat the 80.0000 levels with caution.
Trading Strategies
Conservative traders should wait for either the price to return to the triangle's bottom, probably around 70.0000, or for the upside breakout of the 80.0000 levels. Really cautious traders would employ a three-day, 3% filter to avoid a bull trap.
Moderate traders would go long when the price falls back to 75.0000, to its short-term uptrend line, or if they're extra careful they'd wait for an upside breakout before taking a long position, with a two-day, 2% filter, to reduce the potential for whipsaws.
Aggressive traders could be short now given the extreme levels and the potential bearish Shooting Star, provided they operate according to a sound trading plan. Here are the basics:
Trade Sample
- Entry: 80.0000
- Stop-Loss: 81.0000
- Risk: 10,000 pips
- Target: 77.0000
- Reward: 30,000 pips
- Risk-Reward Ratio: 1:3