The dollar against the ruble: forecast for 2020


Dear friends,

 

In connection with the sharp collapse of the ruble, many of my friends had a reasonable question: what will happen next with the ruble and how to store their savings?

Fundamental analysis

To answer this question, you need to look into the history and return to 6 years ago. On March 18, 2014, Russia completed the annexation of Crimea, securing it with an agreement on the official entry of Crimea into the Russian Federation.

The reaction of the United States, the European Union and their allies was immediate and expressed not only in publicly condemning the actions of Russia but also in putting in place a package of measures aimed at putting pressure on the Russian government.

I must say that this package continues to expand. For example, 155 individuals and 44 organizations are already on the EU sanctions list. The US restrictive package is even larger. The number of organizations in it has already exceeded one hundred.

The chart above shows the curve of the movement of the price of the Ruble to the Dollar (blue line) and the price rate for one Barrel of Brent oil. Even lower is an indicator reflecting the correlation of the movements of these two instruments.

As you can see, from the moment of the imposition of sanctions, the ruble exchange rate began to quickly lose value, having fallen in price by 143.8% in two years (from 33 to 83 rubles per dollar)

This trend partially coincides with the bearish trend in oil prices, but the latter fell only 76.3%

Those. To say that the ruble is 100% tied to the price of oil is still impossible. This statement is indirectly confirmed by experts (both domestic and foreign), who estimate that the share of budget revenues from the sale of hydrocarbon resources in the country’s economy at the moment is only about 30%. This, of course, is also a significant proportion, but not as much as many alarmists can imagine.

A correlation analysis, the dependence of the ruble exchange rate, even in most cases, indicates a completely negative correlation with the price of oil, however, in some cases there is no such relationship. On the chart, he marked with a red circle the area that occupied almost the whole of 2018, when the growth of the dollar price continued in parallel with the increase in oil prices.

This period can be explained by the weakening of the Central Bank’s regulatory policy at the ruble exchange rate, according to the new principles of which direct participation in the Central Bank’s tenders will be in exceptional cases, and therefore, taking into account the sanctions and the current level of prices for a barrel of oil, the ruble exchange rate as a whole can be considered fair.

In this situation, you need to understand that the weakening of the ruble against the dollar compensates for lost profits in foreign currency from the sale of oil. According to estimates of the same Ministry of Finance, when the dollar depreciates by one ruble, the budget receives an additional 70 billion rubles a year. Given the fact that the 2020 budget laid the course at 65.7 rubles / USD. Additional income in ruble terms may reach 1 trillion. Rubles, which of course compensates in part for the deficit of external borrowing.

However, in the long term, a cheap ruble is not profitable, as it accelerates inflation, leads to an outflow of foreign investment and complicates foreign loans. Low oil prices will also help reduce future sales and exports of hydrocarbon resources. All this together, in the medium term, will slow down the economic growth of Russia, whose state is already on the border with the recession.

Fundamentally, the scenario does not look rosy. Let’s see what technical analysis tells us.

Global scenario

The chart above shows a three-month time frame with the expected wave structure of the supercycle. Unfortunately, I could not find a chart with the full history of the ruble movement in the public domain, so the first wave was built in the form of a projection in the distant 1991 when the official rate for one dollar was 0.25 kopecks.

Taking this moment as the starting point, we get a five-wave structure, where the third wave is elongated, and therefore, with a high degree of probability, the fifth wave can be truncated and not grow above the historical maximum of 85.94 rubles for one USD.

On the other hand, on the same chart, we see a bullish channel formation that allows the fifth wave to develop up to 100 rubles for 1 USD and the price to exit the equilateral triangle with a target in the same area (equal to the length of the base)

On the monthly chart …

The cycle structure (orange) in the fifth wave of the supercycle (violet) is visible above. If we assume that the structure of the third wave of the cycle will be built without anomalies, then its length will be 1.618 from the first wave, and its growth limit, therefore, will be as close as possible to the peak of wave (3) of the supercycle and the historical maximum of 85.94 rubles, which is another bell to the fact that this goal will be achieved in the long run

The graph also shows a grey rectangle in the middle – the projection of the annual candlestick from Thomas DeMark for 2020.

In the framework of this projection, there is no unidirectional movement of the differential arrows, and therefore, with a high degree of probability, there will be increased volatility and a probable rebound from the limiting values ​​of the projection.

In the chart above, we see confirmation of these words thanks to the composite oscillator (chart below), which is in the overbought zone, as well as the Thomas DeMark ROC indicator (second chart from below), which alludes to a bearish divergence.

 

On the weekly chart …

In the weekly chart above, we see a blue wave structure within the third wave of the cycle. Following its logic, we are now in the phase of the formation of the first wave, which, judging by the sharp growth, will have an elongated first wave.

In the graph above, you can also notice the potential recurrence of the fractal in the development of the first wave of the substructure in the first wave of the cycle (yellow structure of a higher-order).

What is the result?

As a result, the following scenario emerges.

At the moment, USDRUB is in the gray zone – in the consolidation zone. Exit below the top of the first wave (below 70 rubles) will be a good area for buying currency, with the expectation of continued movement.

The red region is the key for the buyer, since with the exit into it, and even more so with its intersection, the structure of the growing impulse will be broken. In this case, it is necessary to revise the scenario and look for the exit points from the Dollar. However, the implementation of such a scenario is unlikely.

The most likely scenario is consolidation in the gray zone (region 70–76 rubles per dollar) with the potential for continued growth. The purpose of the movement is 82.5 – 86 rubles / USD.

Therefore, from above it is the threshold of 76 rubles that is key for sellers since, with its penetration, an impulse to the goals indicated above is likely.

From the point of view of fundamental analysis, this scenario is justified. The Central Bank has a lot of trump cards up its sleeve to keep the ruble depreciating in the short term, however, if the history of cheap oil drags on, and judging by my latest forecast, it will be so (see here), the government will have no chance how to weaken the course and continue its soft devaluation.

Just in case, I want to remind you that all the materials presented by me as examples and solely for educational purposes. This is not financial advice and I do not give guarantees of profit. You make all trading decisions yourself, at your own risk.

Take care of yourself and your money!

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Respectfully,

Michael @Hypov

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