USDRUB rallies through 53 once again

The combination of possible intervention from the Central Bank of Russia (CBR) alongside a weaker USD boosting commodity prices inspired the USDRUB to pullback on Monday afternoon. However this has been reversed, with the pair extending above 53 again today. The Ruble has been pressured by weaker commodity prices so far today, with the USDRUB rally picking up additional momentum following the announcement from the Russian Economy Ministry that GDP is expected to contract by 0.8% in 2015. Not only has this further weakened the economic sentiment towards Russia, but the news will likely make any attempts from the CBR to rebalance the Ruble very difficult to implement.

The economic conditions Russia is facing right now are aggressively against its economy. The Ruble is going to remain under pressure for some time because when you combine the economic sanctions following the geo-political conflict in Eastern Europe, and a drop in commodity prices will inevitably weigh on GDP. When these factors are then joined with the consensus that the USD will rally aggressively when the timing of the first US interest rate rise is announced, the CBR has a difficult task to rebalance the Ruble. Unless commodity prices reverse, or demand for the USD weakens substantially, any attempts at currency intervention will likely continue to have a limited impact.

After several stock indices yesterday faced their largest one day losses since October, stock markets have attempted to point higher today. The official index of the Spanish stock market, IBEX 35, received a small boost when the number of Spanish unemployed declined by over 14,000 during November. Despite the positive news from Spain, the Eurodollar still declined by nearly 40 pips to 1.2429 with investors remaining cautious that the European Central Bank (ECB) might act on Thursday to add further stimulus to the economy. Even if the ECB refuses to act this month, Draghi could use the example of the 6.2% annualised decline in Spanish job seekers as evidence of how government structural reforms can help the EU economy more effectively than introducing further stimulus.

The GBPUSD has performed in line with expectations, with the pair losing nearly 60 pips. The main economic data release today from the UK was the Construction PMI which was expected to dip to 61 from 61.4 in October. The decline to 59.4 was worse than expected, with the data slipping below 60 for the first time since October 2013. Previous housing data from the UK has suggested the housing sector is also slowing down. Bearing in mind that the Bank of England (BoE) has previously been explicit in suggesting that the housing sector poses the largest threat to the UK economy, a slowdown in housing is not necessarily a negative but it does point towards further indications of a slowdown in UK domestic consumption.

Unless US Construction Spending data inspires some risk appetite in the currency markets, the Cable is likely to continue pointing towards the downside for the rest of trading. The GBPUSD will also be at risk tomorrow, when the Autumn Statement is released. There are expectations for a downbeat statement, which could inspire bearish momentum in the GBPUSD. The pair opened trading on Monday at a new yearly low of 1.5586, which I think was the result of investors pricing in a downbeat statement early. If this is the case and the Autumn Statement is viewed upon negatively, we might see a return to this level.

Written by Jameel Ahmad, Chief Market Analyst at FXTM.

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