Russia FX Beat - August 14, 2017

> Today's focus. Risk-on.
> Global trigger: Ease in geopolitical tensions. Following remarks by US officials playing down expectations of a conflict with North Korea, tensions between the two countries have eased. As a result, stock markets in Asia and S&P 500 futures are up this morning. Gold's advance has been halted ahead of the $1,295/oz resistance level and the dollar is strengthening against the yen, back to 110. After hitting lows last seen in January 2015 (92.5) last week, the DXY index is rising. The US 10y Treasury yield has remained flat at 2.20%.
US inflation data for July, released on Friday, showed further signs that the deflationary trend had solidified. Core CPI remained at 1.7%, below the market expectation and the Fed's target of 2%. This favors a more gradual pace for rate hikes.
Three major Chinese economic gauges were released this morning. They showed a significant drop in economic momentum in China and offered potential signs of a slowdown in 2H17. Industrial output (6.4% y-o-y), retail sales (10.4%) and investment in fixed assets (8.3%) grew, but the growth was below market expectations and decelerated from the previous month.
This week is moderately busy in terms of events and data. Tomorrow, US retail sales for July, US Empire State manufacturing and Russian industrial production for July are due. On Wednesday, minutes from the July 25-26 FOMC meeting and US housing starts in July will be released. On Thursday, US industrial production for July will come out.
> Bottom line. EUR/USD could dip below 1.18 today.
> Regional trigger: Risk-on. USD/RUB volumes on MOEX show few signs of picking up, although, after a few days of profit-taking, demand for risky assets and the ruble from foreigners, despite volatile oil prices, increased on Friday. The only flow offsetting this is local FX buying, mostly by second-tier importers and some banks.
Debt due to the CBR for fixed-rate repo has reached R666.9 bln, increasing by R271 bln since the beginning of August and growing to 13 times the amount due at the beginning of July. The continued pickup in demand for CBR refinancing, the most expensive type of ruble funding (10% interest rate for 1y), indicates that some local banks continue to face ruble liquidity issues.
Today, EM currencies and the ruble, despite growing oil volatility, look good.
> Bottom line. There is a chance we will see a break of the 59.77 (20d MA) support level in USD/RUB, the next major support level being the 200d MA at 59.42. But we expect FX buying after dividend payments on Gazprom ADRs ($0.8 bln) clear the custodian today or tomorrow.