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Chart of the Day: Sanctions, Economic Challenges Impacting Russia

Published 12/29/2022, 10:39 AM
Updated 07/09/2023, 06:31 AM
  • Western sanctions, including oil price caps and a ban on purchasing Russian crude oil, are reducing Russian export income and potentially increasing the budget deficit
  • The Russian ruble has fallen significantly against the dollar, leading to upward pressure on inflation and potentially requiring the Bank of Russia to reintroduce interest rate hikes
  • These economic challenges, combined with falling energy revenues, are expected to result in a contraction in Russia's economy in 2023 and strain on its balance sheets
  • The dollar/ruble has broken into a rising channel since December 2014, suggesting that the previous dynamic strengthening the ruble is being reversed
  • The dollar formed a triangular bottom versus the ruble, matching up almost perfectly with the range bottom since April 2015 and the long-term uptrend line since the 1990s
  • The pair has completed a pennant, with a sharp rally that promises a repeat performance and a potential surge of 100,000 pips from the 71.0000 breakout point toward the 81.000 level

Western sanctions against Russia over its invasion of Ukraine significantly impact the country's economy. Oil price caps and a ban on purchasing Russian crude oil by the G-7 countries, the European Union, and Australia are reducing Russian export income and potentially increasing the budget deficit. Price caps on Russia's crude and refined oil exports could force the Kremlin to cut output by 5% and 7% next year.

The Russian ruble has also fallen significantly against the US dollar, leading to upward pressure on inflation due to higher import costs. The Bank of Russia may need to reintroduce interest rate hikes to keep inflation under control. These economic challenges, combined with falling energy revenues, are expected to lead to a contraction in Russia's economy in 2023 and strain its balance sheets.

There is a risk that a significant external rebalancing will be needed in 2024, which will slow growth. The current account surplus, which has been a critical pillar of strength for the Russian economy this year, is expected to "shrink rapidly" in the coming months. According to officials, despite these challenges, Moscow should be able to finance any shortfalls through domestic bond issuance and its rainy day fund.

Technical Analysis

USD/RUB Monthly Chart

The dollar-ruble broke into a rising channel since Dec. 2014, suggesting that the previous dynamic strengthening the ruble to the strongest in seven years is being reversed. The rebound occurred after nearing its historical uptrend since the 1990s.

The Russian ruble has seen a significant increase in value between February and June due to high demand for the country's energy exports, particularly oil and gas, which have contributed to economic growth.

Despite being under sanctions imposed by the EU and the US in response to Russia's invasion of Ukraine, the EU, Russia's primary customer for these energy sources, has continued to buy billions of dollars worth of Russian energy each week. Capital controls implemented by Russia's central bank have also supported the ruble by reducing foreign currency purchases in the country.

However, on Sept. 16, 1992, George Soros proved that even an economically mighty country such as Great Britain couldn't artificially support a currency in the long term. Are we witnessing Russia's failure to do the same?

USD/RUB Weekly Chart

Here, we see that the dollar formed a triangular bottom versus the ruble, but what's most significant about the range is that (1) it matches up almost perfectly with the range bottom since Apr. 2015 and (2) the long-term uptrend line since 1992.

The implied target based on the bottom's height is 14.5 from the 65 breakout point, aiming for 79.5.

USD/RUB Daily Chart

Finally, the pair completed a pennant yesterday, which is retesting today, so far, successfully.

The sharp rally that set up the give-and-take between buyers and sellers that make up the pennant promise a repeat performance, with 100,000 pips surge from the 71.0000 breakout point toward the 81.000 level.

Trading Strategies

Conservative traders should wait for the price to close above 72.5000, then retest the pennant's support.

Moderate traders would be content with a successful show of support after piercing already the 72.5000 level on an intraday basis yesterday.

Aggressive traders can enter now, providing they accept the higher risk proportionate to the higher return of beating more cautious peers awaiting confirmation.

Trade Sample - Aggressive Long Position

  • Entry: 71.0000
  • Stop-Loss: 70.0000
  • Risk:10,000 pips
  • Target : 81.000
  • Reward: 100,000 pips
  • Risk-Reward Ratio: 1:10

Latest comments

Russian 'soldiers' are shooting dogs for nourishment while this clot of Putin felching water boys boast about the currency of a nation in decay
The sanctions are killing the EU countries,  and inflation is heating up here.     Its an energy war.    And Russia is now sending its energy to other countries.   Russia is doing well,  while the USA is bankrupting the EU and ourselves - sending 100bil to Ukr with $$ we do not have. I notice you mention Russia will " potentially requiring the Bank of Russia to reintroduce interest rate hikes" It hasn't introduced rate hikes,  but the Fed,  here,   HAS had to.
Its easy just boykott chinese products aswell… it is starting lets see how the manage that. You are right boykott chinese productions other countries are already taking over
If it's true that with sanctions, EU/US is doing badly and "Russia is doing well", then Russia would've sanctioned itself years ago.
Most of the critical comments seem to be written in broken (dare I state, Russian) - English. hmm mm.....
Pinchas, I've been a willing critic of your predictions, but never the facts you cite,: facts are facts after all. The commenters below, however, are in a different league, they insist on rejecting reality, even the facts reported by Russia itself. I'm not sure if there is any response to such willful ignorance.
 I know English. I was jesting.
Jesting or jousting?
 Ousting
I appreciate your efforts to write this analysis. you may be true but I believe this is just western propaganda that Russian economy will shrink due to sanctions, price cap and so on. I believe those sanctions are backfired on US, EU. we may witness realty in coming years. you better write about dollar and it's upcoming disastrous decline.
... kinda like most wars.
The Russian economy has already shrunk by 5% since the start of their invasion... according to Russia.
  And shrank by > 10% in 2022,  according  to:  www.spglobal.com/marketintelligence/en/mi/research-analysis/russia-ukraine-war-reshapes-global-geopolitical-economic-outlook.html
is this guy a joke? either you have no idea what you're writing about or just trying to mislead the readers. so many false information. the ruble was actually stronger (against the usd) until about a week ago that it was before the war! only in the past week it has weakened slightly but still stronger than it was pre-war.
Seems like you missed my earlier post
The RUB was weakening pre-war because the market saw the war coming, because Russia was restricting energy exports pre-war for months.  Rub is below what it was 5 yrs ago while both crude  & nat gas prices are above prices from 5 yrs ago.
Cohen, please advise the shetel that the czar is murdered over 100 years ago and the blood libel is over. The sanctions against russia have spectacularly failed because the west has deindustrialized for 40 years and has no economic power. Fianance and brand names mean nothing. Russia has a record income from record high gas prices due to western sanctions.
Sanctions hae nada to do w/ 100 years ago.  There's plenty of reasons in the last year.
why are you all continue yo mislead us with fake news! russian rouble still at a 5 year high? is it not?
Mark, you literally have the charts in the post.
Yes, it is not.  RUB WAS at 5-yr high in late June.
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