Ruble: the Sanctions issue will be back on the agenda before the fall

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The fed did not meet fully our expectations. The rate was lowered, but the cycle of lower rates is not declared, it was stated that further action will be entirely based on incoming economic information.
Trump, who yesterday predicted on his Twitter account that such a turn [“…our Fed does nothing – and probably will do very little…”], seems to have decided that once the fed need more economic reason to reduce rates, it is necessary to create it! And imposed additional duties against China, expressing, in the process, hope for a successful conclusion of trade negotiations. China has responded in the spirit of “we are not intimidated!”, Bloomberg reports that the Chinese government encouraged state-owned companies-importers refuse to import American agricultural products.
Offshore yuan took this morning a long-term resistance of 7.00 to the dollar. Bank of China set the official exchange rate of the yuan 6.9225, and stated that the dynamics is due to the policy of trade protectionism against Chinese goods, and the refusal to support the course (“the market will find the balance”).
Asian markets are falling, futures for the American markets fall, grow protective assets, USD/JPY for this news fell below 106, – the government of Japan has expressed concern.
We believe that in relation to the dollar and other low-yielding currencies (and the dollar is currently the most profitable currency of all major currencies of developed economies) all these news mean the inclusion of logic”, the fed still has room to lower the rate” and the dollar will weaken. Dynamics of EUR/USD until this is confirmed – the pair last week made a false breakout of the medium-term support near the 1.11, and since this week is fixed above. We believe that it’s time to put on a mid-term rebound in EUR/USD and, given the concern of the Japanese government, EUR/JPY, which justified our fears, fell below the support 121, but we believe that she will return to her.
The pound continues to show weakness in fear of Brexit Hard, our goal is 0.93 EUR/GBP remains relevant.
Oil has fallen – the fear of a trade war overcame all the geopolitical risks, AUD under the double pressure due to the weakness of raw materials and the yuan. Those who do not wish to undertake the risks of the vicissitudes of American politics, and buy EUR/USD, or to do some betting on the weakness of the dollar, should use AUD as an alternative to the USD. AUD/CAD, which can be considered as an indirect indicator of the strength of trade relations, China/USA, has made new lows, and may be further reduced.

The ruble

The ruble fully and ahead of all deadlines met our expectations, AUD/USD bounced back sharply last week above 65. Emotional rebound was triggered by the fact that the United States entered finally the second package of sanctions “over Skrypalia”. We previously warned that it is not necessary to lose vigilance, and that the sanctions issue will be back on the agenda before the fall.
However, upon closer examination, the sanctions were mostly symbolic – a ban on the participation of American banks in the placement of Russian Eurobonds in the absence of sanctions against them in the secondary market, the OFZ market and Russian banks, does not pose any threat for the Russian financial system, so such an emotional weakening seems unjustified. From the start of trading in Moscow on Monday, the ruble strengthened, but we see it strengthening as a correction to the rally held. External background is not conducive to investment in risky assets. We continue to believe that USD/RUB below 65 attractive for purchase with an eye to the fact that the fall rate will be much higher.

The stock market

Stock markets fall on half the fed’s decision and the escalation of a trade war. We expect S&P 500 will find support at 2900, where we carefully presidem in the market, based on increasing pressure trump the fed before the election. We still prefer the American market, but at the moment RTS is strongly oversold due to excessive weakening of the ruble, and can rebound from the range of 1280 – 1290.
Dmitry Golubovsky
FG “Kalita-Finance”