Where is DXY heading? The Dollar index helps us to identify a general risk sentiment.
The market remains under the Head & Shoulders 91.00 pattern boundary. The breakout of 91.00 didn’t manage to continue the bullish momentum, eventually increasing the odds of the downward pressure continuation.
The additional confirmations of the downtrend continuation will arise if the market breaks down the pattern’s right shoulder by closing below 90.00. The best signal of the USD weakness would be the closure below the local low and the long-term support of 89.00
Possible sanctions on Russia and upcoming Ruble volatility
The relationship between Russia and the West has already been shaky since the arrest and imprisonment of Kremlin critic Alexey Navalny and the annexation of Crimea in 2014.
The tensions have escalated due to expelling the German, Swedish, and Polish diplomats without any prior agreement with the EU’s foreign policy chief, that was visiting Moscow. Berlin and Paris intend to prepare a response, which is likely to be in the form of new sanctions in addition to the possible travel bans and asset freezes of the Russian President’s allies.
Contrary to Russian foreign economic policy’s formal stance, it doesn’t seem Russia is striving for sheer cooperation. As the Russian Prime Minister noted: “We don’t want to isolate ourselves from global life, but we have to be ready for that. If you want peace, prepare for war.”
In light of the deepening of the geopolitical tensions, the Russian ruble may become dangerously vulnerable to depreciation. Further sanctions on Russia are likely to be the catalyst to the intensified volatility, possibly not in favor of the ruble.
What should you buy against Ruble?
We’ve found that the Russian ruble could be one of the best targets for short-selling. On the other side, what currency could be the strongest to short the ruble against?
USD is traditionally the first candidate to conduct trades in exotic currencies. However, considering the continuous downward pressure on USD, it isn’t likely to be the most efficient choice. CNY was one of the strongest currencies in 2020, but it’s not in favor of the Chinese regulator to keep Yuan excessively strong to the detriment of Chinese exports.
As CNY is currently in the price area that suggests a possible correction after a prolonged trend, I’d abstain from buying CNY against the ruble.
The Norwegian krone as the shelter from economic instability
The Norwegian currency has been among the top-performing in 2020 and until today. The last release of the economic data confirms the underlying strength of the Norwegian economy. Norway quarterly GDP expanded 1.9%, exceeding the 1.3% expectations. Analysts from Danske Bank and Bloomberg agree about the possible early rates hike in Norway – earlier than most developed countries.
The country maintains an extreme resilience to the pandemic and independence in terms of strategic resources like oil and trade relationships, as Norway is not an EU member.
Therefore, the long trade of NOK/RUB may have sound potential. Let’s see the technical picture of the pair in the daily chart below.
The pair have consistently held above MA since March, briefly testing it and successfully bouncing off. The support area near 8.5 could be a good place for long-term traders to hide the Stop Loss behind, as it coincides with the MA and is tested numerous times.
The market reaction to QoQ GDP release was straightforward – the pair has surged higher shortly after the release. Look at the 4-hour and hourly charts below. The market is bullish on Krone after the GDP data report (marked with the grey arrow).
If you’re a short-term trader, you can also trade off the support area around 8.662-8.687 by placing the stop loss below it or below the local low at 8.65.
The divergence in the economic stability between Russia and Norway creates opportunities for long-term and short-term trades. Although only a few brokers offer NOK/RUB, traders can always create a synthetic pair by buying USD/RUB and selling USD/NOK.