EURRUB Analysis (Sep, 2022) Recession Inbound!?
Updated: Oct 3, 2022
Europe is still hit with looming recessionary indicators and high inflation for the past 6-months. The new data suggests no difference even confirming the likelihood of a recession as the IFO report indicates a four month run of negative data for Germany, Europe's largest economy.
One of the largest indicators of inflation being energy and gas prices, gas has been a huge concern for Germany as it relies heavily on Russian gas. The political pressures to cut back on this gas has forced prices in Germany to rocket, even causing multiple types of businesses to pass this cost onto customers or close shop altogether.
The news comes as more economists predict a recession for Europe as a whole. Germany was heavily dependent on cheap natural gas from Russia, which has cut back supplies to a small fraction of what they were before the Feb. 24 invasion of Ukraine. - Recession clouds gather in Germany, Europe's largest economy (indiatimes.com)
Talks are being made in Saudi Arabia, but is it too late...
Logikfx Technology Summary
The tension in Russia and Ukraine has been rising over the past few weeks with both sides taking huge actions in the wars... these actions have had huge consequences with fiscal policies as seen in the news.
The technology summary page shows the overall economic data in an easy to use page.
What we've identified is that the below indicators are showing extremely bearish data:
Macro currency strength meter
GDP differentials
Interest Rate Differentials
Hedge Fund Positions
This suggests overall that the fundamentals in EUR are bearish but actually potentially deflationary in Russia... this creates an overall bearish sentiment for EUR/RUB based on the fundamentals alone.
What we'll do now is check some of the external factors, technical and volume in the markets to confirm the idea.
Macro Currency Strength Meter
The macro currency strength meter has been showing bearish data for the EU for some time...
This is interesting timing as the EU faces high levels of inflation topped with pressure of Russia owning major energy pipelines to Germany.
What we've seen on the flip side is some of the economic data for Russia be quite bullish even though there's the on-going war in Ukraine their economic reports haven't been bearish for over a month.
GDP Differentials
The GDP differentials are starting to head downwards too suggesting the long term economic growth rates are not looking good for the EU, further boosting the confidence of a potential bearish outlook for EURRUB...
Keep an eye here as we start to see the IMF change forecasts more frequently due to the huge economic uncertainty across the world.
Interest Rate Differentials
The interest rate differentials overall are fairly bearish not reaching a positive differential in over 15 years.
What we're seeing now is actually a slight increase in the differentials as the ECB starts to increase interest rates to try and curb and tackles inflation which is overheating the economy.
The ECB increasing interest rates makes borrowing expensive and therefore a monetary lever used to reduce people's spending power.
Trade Analysis (Imports/Exports)
Volkswagen is an EU based car manufacturer which exports various types of vehicles across the world.
Since they're such a large exporter they exchange large volumes of Euros and other currencies to sell/ buy their products in those countries and employ people.
What we're seeing since April for VW is their share prices have taken a hit and most recently we saw VW recover slightly but slump once again.
This is bearish for EURRUB considering the strong negative correlation between EURRUB and VW.
WTI Crude Oil prices were another commodity within the analysis... for better or worse the price of oil has been gradually falling over the past 5 months which has helped slightly with the overall cost of living crisis we're seeing in the UK and other countries...
This dip in oil prices has been a somewhat mirror against EURRUB as we see WTI fall EUR RUB tends to follow.
EU STOXX 50 one of the largest stock indices in Europe shows the largest companies across Europe.
What we've seen is that the STOXX50 has tanked slightly over the past year which is at no surprise with most business expecting a recession profits are likely to take a hit.
Overall, the trade analysis has shown bearish signs across the board suggesting that even the relative analysis is suggesting bearish movement in the EURRUB exchange rate.
Hedge Fund Positions
The hedge fund positions have been signicantly bearish with a negative open interest.
This negative interest rate differentials is a bearish sign for the EUR and overall supports the bearish sentiment we've seen throughout the analysis...
Price Analysis
We've seen negative fundamentals in this analysis and the price overall the past year has been dipping too...
We may see prices correct slightly but overall any bearish technical signs as we reach prices between 60 - 70 will be great confirmation signals of a potential bearish move moving into the new year.
