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Macro and Vol Commentary

In April, we favoured holding a short USDRUB position with a target of 72, having achieved this and now USDRUB firming; what is next?

Economic data

  • In May, industrial production in Russia was more robust May than the previous month and expectations at 11.8% y/y, up from 7.2% in April.
    • Another confirmation that the Russian economy is returning to normal. All segments expanded except tobacco which was down 4.1% and 0.9%; conversely, auto production grew at 71.4%, furniture 60.4%, and fabricated metals good 44.3%.
    • These growth figures result from the low base from last year, but we expect industrial production is at 5% y/y for 2021.
    • Cargo shipments were up 11.1% y/y in May, an improvement of 6.2% y/y.
  • GDP for Q2 2021 is expected to grow at 8.5% y/y. However, this growth will moderate in Q3 2020 to 3.5% y/y. There is a downside to this figure as the third wave of COVID-19 takes effect.
    • The virus will cap demand, and the tightening of interest rates may keep aggregate demand lower.
    • Retail sales were strong in May at 27.2% y/y, above April's figure of 26.3% y/y.
    • Real wages were significantly higher at 7.8% y/y, up from 1.8% y/y in April.
    • Construction was also growing at a substantial rate of 7.7% y/y in May.
    • The economy was showing signs of robust growth going into the third wave.
  • Markit services and composite PMI expand at 56.5 and 55, which was moderately below May's figures at 57.5 and 56.2, respectively.
  • Manufacturing PMIs stand contracted in June with a reading of 49.2.
    • Export orders declined sharply, the fastest rate in 5 months.
    • We also saw a decline in employment as firms started to cut jobs.
    • Price pressures continue to rise quickly, with firms attributing this to a weak exchange; however, business sentiment improved.
  • Inflation has been rising, and the central bank has responded by raising rates. CPI weekly YTD is up 4.1% to June 4.1%.
    • CPI to June 28th was 0.2% w/w, with PPI at 2.3% m/m in May but 35.3% y/y.
  • The unemployment rate is has been declining, down from 5.2% in April to 4.9%. A boost to demand as consumer spending and retail sales stay strong, but the third wave of the virus is a headwind to the economy. Consumer confidence is rising but is still negative at -18, which is an improvement from Q1, which was -21.


  • OPEC+ have dominated the news this week as Saudi and the UAE cannot agree on output, OPEC+ agreed to add 400,000 barrels a day for each month from August, but the UAE want to review the baselines from which the new supply is built, which would mean an extra 700,000 barrels a day.
    • With no agreement being made. The risk to prices is significant; more supply is needed to meet demand from August; if output remains the same, prices will continue to firm as the market improves and inventories drawdown. It is adding to inflation risk.
    • If there is a mass fallout that everyone wants to avoid, we could see reduced compliance and countries increasing output significantly, sending prices lower. In a similar way to 2020, when prices turned negative.
    • Higher oil prices would present further inflationary pressure to EM currencies and cause them to hike rates faster. However, this could be transitionary as higher income taxes.
    • Higher oil prices are a boon for the Russian economy, and this would see the current account and trade balance improve, strengthening the Rubles.


  • Russia's inflationary pressure is getting worse, and we expect the central bank to increase rates further. Since March, we have risen by 125bps; the recent guidance suggests policymakers will increase rates further, with Governor Elvira Nabiullina saying the central bank could raise rates by 25-100bps on the 23rd of this month.
    • Strengthening consumer demand and higher employment will act as a tailwind to inflation.
    • Commodity prices have softened marginally in recent months, which will cool pressures in the medium term if they continue to soften.
    • Russia bought 21.1bn Rubles to settle on July 6th.
    • Bank of Russia accepted 1.04tr Rubles in 7-day deposit, and 972.1bn Rubles in 1-day deposit auction.
    • Russia's Wealth Fund has cut its dollar holdings to zero, and the total fund still takes at $187.6bn in June.

In recent weeks, the dollar has firmed following the Fed's last meeting; however, Fed minutes last night indicated that the debate over when the Fed will taper their asset purchases. This debate is expected to dominate the conversation in the coming months. The inflation trade is still on, and higher raw material prices and a weak currency caused the Bank of Russia to hike quickly. These were largely priced, but the June inflation reading and strong retail sales outline that the Russian economy may need more cooling. We do not think the dollar will turn just yet; the Fed is still increasing its balance sheet and has not tapered yet. Bond yields have declined in recent weeks as well. In the long run, growth prospects are muted by higher-income taxes as governments look to recuperate some of the expenditure from COVID-19. The oil price will significantly impact inflation expectations; ultimately, we do not think they want another situation where oil goes into negative territory. We anticipate some agreement that would be revised before the end of that agreement. We still favour selling USDRUB rallies at this time, but the window for this trade is narrowing before the USD trends higher.

Volatility Commentary

As mentioned above we’ve recently seen post-Fed bouts of USD strength, however, we’ve seen many EM (including Russia as above) also seeing inflation as a concern. As such we’ve generally been expecting rate hikes this year (and have already seen some) from EM economies and see the potential for Russia to follow suit. We’re favouring positions that benefit from USDRUB moves lower, and with volatility recently beginning to realise higher and the spread between implied and realised volatility closing we also favour slight long vol/gamma positions on this pair as well.

USDRUB 1-month Implied and Realised

USDRUB Trade Idea 

  • Buy 2-month EKI USDRUB Put in 10m USD notional with strike 74.00 and EKI barrier 72.50 for circa 110k USD (note vanilla equivalent is circa 130k USD)
  • Sell 2-month Vanilla USDRUB Put in 10m USD notional with strike 71.00 for circa 21k USD
  • Total up front premium cost circa 90k USD

Positioning Charts

USDBRL NDO Positioning Data 24/06/2021 - 01/07/2021

In the week to July 8th, there were large amounts of puts traders, but the options due for expiry in July held no real pattern and the notional values are small. There is a strip of puts for expiry in the first week of August which have a range of 4.80-5.10, with sizeable nationals, there are some smaller puts that have a range 5.10-5.30. There remains very little upside cover, at any strike. We expect the market USDBRL to weaken once again as Brazil hike rates.

USDBRL NDO Positioning Data 01/07/2021 - 08/07/2021

USDCNY Vanilla Positioning Data 24/06/2021 - 01/07/2021

Option volume was a lot lower in the week to July 8th, the range is a lot more concentrated around 6.50. The range in Chart 1 was 6.30-6.75 whereas, in the week to July 8th, the range was 6.40-6.55. This suggests traders lack conviction in the market There are some large put options due for expiry in January 2022. 

USDCNY Vanilla Positioning Data 01/07/2021 - 08/07/2021

USDRUB Vanilla Positioning Data 08/05/2021 - 08/06/2021

The dollar strength across the market has triggered more upside cover in the month to July 8th. The USDRUB firmed and the range for options shifted higher, there remains significant downside cover, notional values were lower in the month to July 8th. We expect the USDRUB to weaken in the coming months but as chart 2 shows, upside cover for Q4 might be the right trade as the Fed taper, a signal of monetary policy tightening. 

USDRUB Vanilla Positioning Data 08/06/2021 - 08/07/2021

Charts and Tables

FX Expiries

Volatility Grid

Historical Spot FX Volatility (30D Rolling)

FX Matrix (today)

Weekly Change

Key Events & Releases

Technical Charts

JP Morgan Global FX Volatility Index 

The index has strengthened in the last couple of sessions and broke above key resistance at 7.00 but have struggled to break above 7.10. The stochastics are seen converging on the downside in the overbought territory, and the MACD diff is positive and converging. In order to confirm the outlook of lower prices, the index needs to reaffirm resistance at 7.05 and then take out the key support at 200 DMA at 6.80. On the upside, a break back above 7.10 and a test of 7.20 would indicate further upside potential. Recent gains have been well bid, but if prices struggle above the current resistance, we could see prices edge lower in the near term.

Dollar Index

The index has improved so far in July and has breached resistance at 92.22, and now stands at 92.30. The stochastics are falling, edging towards the oversold, but the MACD diff is negative and diverging, suggesting we could see the index push lower in the near term. The index needs to hold above 50 MA at 92.37 before targeting previous highs of 92.84. The reaffirmation of near-term support at the moving averages suggests we could see the market push higher. However, on the downside, to confirm the indicators the index needs to break below near-term support, this could trigger a breach of support at 100 MA at 92.11. The index continues to consolidate, however, testing the support at 50 MA more often, and a break of this level would confirm the outlook for a change in momentum.


The pair gained ground in recent sessions but has failed to break above resistance at 75.34, and this triggered losses back to 74.40. The stochastics are falling, diverging out of the overbought, and the MACD diff just converged on the downside, and this could set the scene for lower prices. The three black crows today confirms a sharp change in the sentiment, but the pair needs to take out 74.00 and 73.50 to confirm the outlook. On the upside, rejection of prices below 74.50 could trigger gains back towards 75.00. To confirm the outlook of the weaker prices in the long term, the pair needs to break the support at 74.00. A breach of this would confirm the indicators and the candle formation for further downward pressure.



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