Quarterly Outlook
Macro Outlook: The US rate cut cycle has begun
Peter Garnry
Chief Investment Strategist
OTC Derivatives Trading
Summary: USDRUB has traded weaker over the last months and currently trades at interesting technical levels. The technical set up in combination with the upcoming US election offer different trade opportunities.
Saxo Bank publishes two weekly FX Options Market Update reports covering changes and updates on the FX Options and FX Volatility market. They describe changes in FX volatility levels, risk premium and ideas how to trade based on these.
USDRUB has traded higher since the beginning of the summer. Potential sanctions related to the Navalny poisoning and a negative outlook if Biden would win the election has put pressure on RUB. A Biden victory is almost priced in fully by the market by now and the question is if there will be any more negative pressure on RUB if Biden wins. Any sanctions related to the Navalny positioning looks to be target to individuals which shouldn’t have any negative impact on the Russian economy.
USDRUB overshot out of the trendline at the end of September and is now trading close to strong support levels. A Trump victory could take USDRUB quickly lower or a Biden victory could take USDRUB back up to the top of the range. EM has traded strong over the last weeks and RUB has a bit of catch up to do if the positive risk sentiment continues going into the election and its possible we can see USDRUB break lower on back of that.
Both vol and risk reversal trades on the high side due to the election and the high spot levels. The potential big move lower if we break the support and the high risk reversal makes buying USDRUB puts attractive. Call spreads offer good discount compared to buying just a call for a trade higher in USDRUB.
Bearish
Buy 1 month 76.00 USDRUB put
Cost 10,200 pips
Bullish
Buy 1 month 78.00 USDRUB call
Sell 1 month 81.00 USDRUB call
Cost 8,700 pips
Spot ref.: 77.15
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