Top Trade Idea For December 19th, 2014 – USD/RUB
Russian Rouble Roulette
It’s hard to go past the Russian rouble as the traders’ choice, given the extraordinary volatility. Extreme price movements demand traders respond with aggressive risk management, but the potential rewards for a good entry are attractive. Trading USD/RUB is not for the inexperienced. However, traders willing to adapt to the environment may set themselves for a very good start to the new trading year.
Frankly, the fundamentals favour a Russian economic meltdown. The knock on effects of Western sanctions and a much lower oil price are just beginning. Already, bond yields have blown out, and the ability of Russian corporates to service the estimated $700 billion of external net debt with foreign reserves of just $416 billion is in question. The next move may be a run on banks, as citizens seek to spend their roubles ahead of further significant depreciation.
Emergency measure announced overnight have stabilised the rouble – for now.
The chart illustrates the extreme moves of the last 4 trading days. Traders doubting the ability of Russian authorities to stem the tide may wait for a move up through today’s highs just above 64.00. Buying on a break through 64.20 may give the required entry. Traders may be prepared to suffer a number of stop outs to achieve along position.
Unusually, there is no target for this trade. If the rouble implodes, the final settlement may be denominated in 100s or 1000s of roubles. Worth waiting for.