FxWirePro: Stern Strength in Crude, Cyclical Asymmetric Reactions Bid Longs in MXN and RUB - Hedging Perspectives
Despite the strong dynamics in Brent crude, staggering close to the USD50/bbl mark, upside risks for DXY and the asymmetric reaction to a re-pricing of Fed hikes could weigh on the ongoing recovery.
In that scenario, RUB is likely to underperform, with the move lower compounded by the crowded bullish positioning.
In view of its stronger trade linkages to China (share in exports only second to South Africa in EMEA and much higher than Mexico's direct exposure) the ruble could re-couple to the upward drift in USD/CNH.
Meanwhile, the peso should draw on rising chances of a hawkish reaction from Banxico, as USDMXN draws close to the edge of the regulator's optical tolerance threshold (19.00).
At spot ref. 65.4330: we recommend either going long in 2m/1w diagonal USD/RUB put spread or shorts in near month futures, but the oil and RUB recovery now look too extended for a put position vs. the USD as from current levels we see only contained further potential for RUB gains.
A 67.50/64.25 diagonal put spread is likely to fetch for certain yields of the USD notional as it edges above upto higher strikes in next 1 week or so and slides as much as possible upto maturity on longs.
Risk is potentially unlimited the further USD/RUB trades below 67.50 within expiry on short side. The structure should benefit from a further compression in RUB volatility in a bullish scenario.