USD/RUB forecast: bearish flag points to a Russian ruble surge

The USD/RUB exchange rate retreated to the critical support at 83 on Friday as the US dollar index (DXY) crashed and after the US called for a quick resolution to the Russian and Ukrainian crisis. It has dropped by almost 28% from its highest point in December last year. 

US dollar index crash

The USD to RUB exchange rate dropped as the US dollar index (DXY) continued its strong downward trend as recession risks rose. The DXY, which tracks the performance of the US dollar against a basket of currencies, dropped to a low of 99, its lowest level in over three years. 

This decline happened as more Wall Street analysts predicted that the ongoing trade war would damage the US economy. Moody’s and top companies like Goldman Sachs and Morgan Stanley estimated that the US may sink into a recession as the trade war escalates.

Just on Friday, China announced fresh tariffs on the US, which brought its levies on US goods to 125%. The escalation happened a day after Donald Trump boosted his tariffs on Chinese goods shipped to the United States to 145%.

Analysts note that even the base 10% tariff being charged to other countries will greatly impact the economy. Also, the US is still charging all auto, steel, and aluminium imports a large 25% tariff. 

The US dollar index also plunged as turmoil in the bond market escalated. Data shows that the ten-year yield dropped to 3.859% on April 4 and then bounced back to 4.58% on Friday. This performance meant that even the US government bonds were not safe havens.

The US dollar index also reacted to the latest US inflation data. According to the Bureau of Labor Statistics (BLS), the headline Consumer Price Index (CPI) dropped from 2.8% in February to 2.4% in March, while the core CPI retreated to 2.8%.

Russian economic woes

The USD/RUB exchange rate also reacted to the ongoing Russian economic woes as crude oil prices continue falling amid demand concerns. 

Brent, the global benchmark, initially dropped to $58.45 and then ended the week at $65. Most importantly, the Russian ural, dropped to $50 during the month.

The Russian government mostly depends on oil and gas to fund its budget. And in its budget estimates, officials used an oil price of about $65. This means that the country will run a wider budget deficit than expected. Dmitry Peskov, the country’s spokesperson, said:

“We are very closely monitoring the situation, which is currently characterized as extremely turbulent, tense, and emotionally overloaded.”

Russia hopes to compensate the falling oil prices with a deal on Ukraine that would be accompanied by the end of sanctions. Such a move would lead to more Russian energy sales, helping stabilize the economy.

USD/RUB technical analysis

The daily chart shows that the USD to RUB exchange rate has dropped sharply as hopes of a Russian and Ukraine settlement rose after Trump’s election. It dropped from last year’s high of 114.5 to a low of 80.97. 

The downtrend then eased a bit as the progress of talks slowed. It has already formed a death cross pattern as the 50-day and 200-day moving averages crossed each other.

Also, the pair has formed a bearish flag pattern, a popular continuation sign characterized by a vertical line and a rectangle. Therefore, there is a likelihood that the pair will continue falling as sellers target the next key support level at 80.97, its lowest level this year. It will then drop below 70 later this year.

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