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Eastern European EMs pullback. Can they continue higher?

March 11, 2022 4:28 PM

The Central Bank of Russia began quoting Ruble currency pairs again.  However, that doesn’t mean it is available to traders.  Many brokers are currently not offering trading of the Ruble to their clients due to the extremely volatility, light liquidity, and very wide spreads that Ruble pairs have experiencing since the beginning of the invasion.  However, the Eastern European Emerging Market currencies continue to have a strong correlation with USD/RUB on the daily timeframe. 

USD/PLN has a correlation coefficient of +0.94 with USD/RUB on the daily timeframe.  A reading of +1.00 is a perfect positive correlation and means that the two pairs move in the same direction 100% of the time.  A reading of +0.94 is pretty close.   USD/PLN made a low of 3.9132 on February 10th, the day before the US announced an invasion by Russian forces could occur any day.  From there, the pair moved parabolic and made a high of 4.5199 on March 7th, making all-time new highs along the way.  Since then, the pair pulled back to horizontal support and an upward sloping trendline near 4.3078.  This was also the previous all-time high. Notice that the RSI also unwound and moved back into neutral territory.  If USD/PLN breaks below the initial support, the next support level is at the 50% retracement of the move from low of February 10th to the high of March 7th near 4.2665.  Horizontal support its just below at 4.2395. Near-term resistance sits at the lows from March 8th near 4.4416, then the all-time highs from March 7th at 4.6199.

Source: Tradingveiw, Stone X

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The daily chart of USD/HUF has a similar look to that of USD/PLN. USD/HUF also has a correlation coefficient of +0.94 with USD/RUB.  USD/HUF made a low of February 10th at 307.562 and moved in parabolic fashion to a high of 368.058 on March 7th, making all-time new highs along the way.  Since then, the pair pulled back to test the previous all-time highs at 341.258 and an upward sloping trendline dating to March 9th, 2021.  Notice the RSI unwound and moved back into neutral territory.  If price breaks below, the next support level is at the 50% retracement from the February 10th lows to the March 7th highs near 337.810.  Below there is horizontal support at 333.455.  Near-term resistance is at the March 8th low of 351.295, then the all-time highs from March 7th at 368.058.

Source: Tradingveiw, Stone X

 

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The daily chart if USD/CZK is slightly different from that if USD/PLN and USD/HUF.  The correlation coefficient between USD/CZK and USD/RUB is +0.91.  This is still a strong correlation, just not as strong as that of USD/PLN and USD/HUF.  The pair made a low on February 7th at 21.1267 and moved in parabolic fashion to a high of 23.9246 on March 7th.  This was also horizontal resistance and just below the 61.8% Fibonacci retracement from the highs of March 2020 to the low of May 2021.  Since then, the pair pulled back and fell below the trendline dating back to March 2021. It also tested the previous all-time highs at 22.9325.  Notice the RSI unwound and moved back into neutral territory.  First support is at Thursday’s low of 22.7091, then horizontal support and the 50% retracement from the low of February 7th to the high of March 7th near 22.5256.  Below there, price can fall to the 61.8% Fibonacci retracement from the same timeframe at 22.1955.  Resistance is at the long-term upward sloping trendline near 22.1334 and then the recent highs at 23.9246.

Source: Tradingveiw, Stone X

 

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Eastern European Emerging Market currency pairs have strong correlations with USD/RUB.  Therefore, if USD/RUB continues moving higher, then given the strong correlations, the EMs may move higher with it!  If one wants to trade USD/RUB but does not access the market, these EMs make a strong substitute.

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