Russia’s economy is forecast to contract by as much as 6.0% in 2020 due to the global Covid-19 pandemic and subsequent nationwide lockdown. The government announced a ₽5 trillion economic recovery plan throughout December 2021 to boost GDP, spur job creation, and increase the average income of Russians. It will be financed partially by an increase in borrowing, but the Ministry of Finance will also deploy capital from the National Wealth Fund, Russia’s sovereign wealth fund. The financial options and flexibility add a bullish catalyst to the Russian Ruble, enhancing breakdown pressures in the USD/RUB.
The Force Index, a next-generation technical indicator, is trending sideways after moving below its horizontal resistance level. Bearish pressures are on the rise, enhanced by its descending resistance level, as marked by the green rectangle. The Force Index is favored to collapse below its ascending support level and into negative territory, granting bears complete control of the USD/RUB. A breakdown in this technical indicator below the April intra-day low cannot be excluded.
While the Russian budget is predicted to face ₽2 trillion less in tax receipts due to low oil prices, a tax rule will offset an estimated ₽700 billion this year and ₽3 trillion over five years. It is part of a mechanism to keep domestic fuel prices stable, where the government pays subsidies when prices are elevated and receiving the difference from producers when prices are depressed. Mineral taxes and export duties further ensure a reduced requirement to borrow funds in the open market. The current counter-trend breakout in the USD/RUB is on the verge of reversing, with the short-term resistance zone located between 71.783 and 73.262, as marked by the red rectangle, pending a downward revision.
US retail sales will be released today and could provide the next short-term catalyst for this currency pair. A strong recovery is assumed, with all states pushing for an aggressive reopening of economies since Memorial Day weekend. It led to a surge in new Covid-19 infections, hospitalizations, and an increased risk to reimplement localized lockdown measures. Riots and protests across the US add the likelihood of more confirmed cases. The descending 38.2 Fibonacci Retracement Fan Resistance Level maintains the bearish chart pattern. A breakdown in the USD/RUB below its support zone located between 67.688 and 69.220, as identified by the grey rectangle, is anticipated. It will accelerate the correction into its next support zone between 63.949 and 64.953.
USD/RUB Technical Trading Set-Up - Breakdown Scenario
Short Entry @ 69.300
Take Profit @ 63.950
Stop Loss @ 70.700
Downside Potential: 535 pips
Upside Risk: 140 pips
Risk/Reward Ratio: 3.82
In case the Force Index pushes above its descending resistance level, the USD/RUB is likely to face a temporary spike in bullish pressure. The upside potential remains limited to its 61.8 Fibonacci Retracement Fan Resistance Level, and Forex traders are recommended to consider any advance as an excellent selling opportunity. Market manipulation by the US Federal Reserve suggests a structurally weak economy, reducing the recovery potential. Therefore, debt is forecast to increase with genuine GDP output decreasing.
USD/RUB Technical Trading Set-Up - Limited Breakout Scenario
Long Entry @ 72.500
Take Profit @ 75.500
Stop Loss @ 70.700
Upside Potential: 300 pips
Downside Risk: 180 pips
Risk/Reward Ratio: 1.67