Russia cements the risk off theme

<p>The risk trade is under pressure again this morning as markets trade in a volatile fashion, and liquidity remains at the typical year-end premium. The […]</p>

The risk trade is under pressure again this morning as markets trade in a volatile fashion, and liquidity remains at the typical year-end premium. The driver of the latest move has stemmed from Russia with the Central Bank hiking interest rates to 17% from 10.5% overnight. This being the largest single rate increase since 1998, when rates were over 100% and they defaulted on debt. The timing of the hike, one week following the CB’s usual meeting and a 1% hike at the time, coupled with falling oil and Western sanctions, suggests a country willing to forego growth for the sake of the financial system.

USD/RUB was initially trading 8% higher than pre-hike levels, but as Brent oil trades a fresh five-year low along with European bourses now all trading firmly in the red, it’s not surprising to see the market testing a Central Bank’s resolve as the rouble corrects the entire interest rate hike move as the chart below highlights.


Sterling initially saw marginal support this morning with the BoE stress tests revealing that only the Co-Operative Bank failed the tests. RBS and Lloyd’s evidently scraped through following their pre-emptive measures to shore up capital defences.

The CPI data then brought the proud pound back down to earth and close to a 1.55 handle as UK inflation slowed to 1% from 1.3% in October, revealing the largest decline since 2002. The a failure of the 1.5585 support level saw GBP rally back above 1.57 as the dollar continued to decline and BoE Governor Mark Carney reminded the UK that a lower oil price was positive for growth.



Supports 1.2410-1.2340-1.2300 | Resistance 1.2535-1.2600-1.2650




Supports 116.20-115.80-115.45   Resistance 118.00-118.60-119.00




Supports 1.5590-1.5540-1.5460  Resistance  1.5740-1.5785-1.5820





Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.