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Russia raises rates on heavy RUB sell-off, JPY stronger

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The Russian Central bank raised its key rate from 10.5% to 17% effective from today amid USDRUB spiked to fresh-all-time high of 64.2614. USDRUB gap opened at 62.4661 and aggressively bounced verse USD. The sentiment remains RUB-negative as crude continues its slide. The WTI contracts tests $55. Some think that the Fed needs to take into account the sizeable oil slide at its two days meeting starting from today.

The Asian equity markets were mostly sold on weakening oil concerns: Nikkei wrote-off 2.01%, Shanghai’s Composite lost 1.15%, Jakarta Composite, Sensex and Kospi retreated 1.66%, 1.30% and 0.85% respectively, as traders move toward a risk-off mood before the FOMC decision (due Wed). The Shanghai’s Composite has been the only winner overnight, added 2.31%.

The Japanese news agency Nikkei said Japan considers 2.5% corporate rate cut. USDJPY and JPY crosses were sluggish in Tokyo. USDJPY retreated to 117.13. We see room for deeper downside correction given the strengthening bear momentum. Bids are seen pre-117.00 from long-horizon investors. More support is eyed at 115.46/50 (Nov 17th low / Fib 61.8% on Oct-Dec rally). EURJPY attacks the daily Ichimoku baseline (146.18) with next support zone placed at 143.81/145.00 (Fib 61.8% on Oct-Dec rally / optionality).

The RBA minutes reiterated bank’s intention of stable rates, talked down the Aussie. AUDUSD rebounded from 0.8200 for the second consecutive day. Option bets take over the market below 0.82 at the second half of the week. We expect the AUDUSD to continue its steady slide toward 80 cents.

GBP/USD cleared 1.57 support on broad based USD strength yesterday. The UK releases November inflation figures today. The headline CPI is expected to ease from 1.3% to 1.2% on year to November, the core CPI is seen stable at 1.5%. Given that further CPI deterioration on sliding oil prices is mostly priced in, we do not expect a sizeable price action on soft read. We keep our bearish bias on GBP verse USD as given the strict tone on the fiscal leg, the BoE has little room for surprisingly hawkish move.

EUR/USD consolidates below 1.25 resistance. Trend and momentum indicators are marginally positive, while traders remain seller on rallies. Resistance is seen at 1.2536/1.2600 (50-dma / Nov 19th high). EURGBP barriers are seen at 0.7945/75 for today expiry.

Today, traders focus on EU27 November New Car Registrations, French, German and Euro-zone December (Prelim) Manufacturing, Services and Composite PMIs, Italian and Euro-zone October Trade Balance, UK November CPI, PPI and RPI m/m & y/y, ZEW Survey for German Current Situation and Expectations in December, ZEW Survey for Euro-zone Expectations in December, Canadian October International Securities Transactions and Manufacturing Sales, US November Housing Starts and Building Permits m/m, US December (Prelim) Manufacturing PMI.

Quotes:

Peter Rosenstreich – Head of Market Strategy:

“In a wildly surprising move the Russia Central Bank stated that it would increase its key interest rate to 17.0% from 10.50%, effectively immediately. On the surface the decision was aimed at slowing the rubles collapse and lowering inflation risk. Yet, the massive unexpected adjustment reeks of panic and desperation. This hike come on the heels of the largest one-day drop in the ruble and largest single interest rate increase since 1998 prior to Russia default. However, despite the enticingly high yield, there is increasing probably that Russia will dip into recession due to the plugging oil prices making any long Russia trading extremely risky. In addition, with high-yield credit spreads making significant changes there is a material macro move to rotate from risky assets. And right now Russia is deemed one of the most risky assets on the market. We uncertain that today’s hike, despite its size, will halt Ruble selling.”

Ipek Ozkardeskaya – Market Analyst:

“The UK releases November inflation figures today. The headline CPI is expected to ease from 1.3% to 1.2% on year to November, the core CPI is seen stable at 1.5%. Given that further CPI deterioration on sliding oil prices is mostly priced in, we do not expect a sizeable price action on soft read. We keep our bearish bias on GBP verse USD as given the strict tone on the fiscal leg, the BoE has little room for surprisingly hawkish move.”

“USD/BRL hits 2.70. Risk-off is what drives the market as the FOMC starts its two day meeting today. The carry flows should favor USD during the next 48 hours. Capital outflows from BRL, TRY will continue, country specific factors in Turkey is marginal push for higher volatilities.”

Luc Luyet, CIIA – Senior Market Analyst:

“USD/CAD continues to rise and is now approaching the key resistance at 1.1725 (08/07/2009 high). Given the general overbought conditions, the odds to see a corrective phase are elevated. Supports can be found at 1.1516 (12/12/2014 low) and 1.1398 (09/12/2014 low). However, further long-term strength remains favoured. Another upside potential is given by the psychological threshold at 1.2000.”

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