The US labor market report for June was a real blow to the Russian ruble. Meanwhile, the rally of Chinese stocks, which has been ongoing for eight trading days, allowed the ruble to recover losses. According to the IMF, China will escape recession in 2020. In addition, if the country manages to restore economic growth to the pre-crisis level, it will be able to leave the United States behind by 2029-2030, Bloomberg suggests. The realignment of the world's leading economies is of key importance to Russia, as it can determine the future of the country's national currency.
A record increase in employment and a decline in US unemployment became a matter of investors' concern as they feared that this might end in the reintroduction of quarantine restrictions. The rapid opening of the US economy has led to a surge in the number of COVID-19 cases and the implementation of social distancing in some states. Therefore, the demand for risky assets has reduced. For the first time since the end of May, the USD/RUB pair have risen above 72. Nevertheless, a sacred space is never empty. Therefore, China is ready to take the place of the United States.
The story repeats. The current situation is very similar to the events that had happened after the global economic crisis of 2007-2009. Gold and stock indices are growing, and China is leading the global economy to a better tomorrow. The SSE Composite Index also known as SSE Index has been rising for 8 days reaching its highest level since February 2018. The last time the stock index revealed such a long winning streak was 2.5 years ago. The situation in the China's stock market is getting better compared to its emerging markets counterparts. At the same time, the appreciation of the renminbi is usually a good sign for currencies of emerging markets.
Dynamics of stock indices
China and the EU are Russia's largest trading partners. Therefore, the fact that the epidemiological situation in Asia and Europe looks much better than in the United States should support the ruble in the medium and long term. If China escapes from a recession, the eurozone will have a great opportunity to recover faster than expected. Against this background, it is not surprising that US stock indexes are in no hurry to fall, even despite an increase in the number of coronavirus cases. The risk appetite is still high and supported by other regions except the United States.
Let's not forget about the strong oil position and the extremely cheap liquidity from the world's leading central banks. At the same time, both the Federal Reserve System and the European Central Bank are considering the use of innovative monetary policy instruments of targeting returns based on the Japanese and Australian experience. If these instruments are implemented, the cost of funding for carry trade operations will remain low for a long time, which is good news for risky assets.
As for the technical analysis of the USD/RUB pair on the daily chart, a depletion of the correctional movement takes place. It seems that the pullback is completed, and the pair is returning to a bearish trend. Against this background, it is preferable to sell the pair on a breakout at the support levels of 70.2, 70, and 69.2. The area near the 64 mark, where there are reference points of the Crab and AB=CD patterns, can be used as targets.
USD/RUB, daily chart
