Russia FX Beat - August 28, 2017

> Today's focus. Dollar weakness.
> Global trigger: Euro up on silent Draghi. What had been thought to be important speeches by Fed Chair Yellen and ECB President Draghi on Friday turned out to be non-events. Neither Yellen nor Draghi talked about policy. Markets reacted sharply to Draghi's lack of an attempt to talk the euro weaker, pushing EUR/USD up to almost 1.1950, its highest level since the start of 2015. Although we think EUR/USD is overextended, a test of 1.20 is now inevitable.
At the beginning of this week, markets are focusing on the ongoing damage done in Texas by Hurricane Harvey, the strongest hurricane to hit the US since 2004. The US National Weather Service has called conditions "unprecedented."
Markets are looking forward to major US economic data releases later this week. On Thursday, PCE inflation for July is due; in June, it was just 1.5% y-o-y. On Friday, the jobs report for August comes out.
> Bottom line. EUR/USD will hover around 1.1930 for now. A quick move to 1.2014 and higher is possible after the release of the US data on Thursday and Friday.
> Regional trigger: Strong oil and end of tax payments. Despite low trading volumes of $3.7 bln, which has been the normal level for MOEX recently, the ruble was one of the best performers against the globally weaker dollar on Friday, hitting an intraday low of 58.63.
Much of the ruble's recent strength has been driven by foreigners: according to CFTC data for the week ending August 22, the amount of ruble shorts decreased 42%, from $0.5 bln to $0.3 bln, the lowest level since end June. Meanwhile, ruble longs are falling, as well, and are now at their lowest level in two years. So positioning is still negative, but we expect the amount of ruble shorts to decrease further following Friday's rally.
Exporters' activity finally picked up, ahead of the R500 bln in taxes due on Friday. Today is the final day of tax payments this month; R217 bln in profit taxes are to be paid.
Harvey's impact on US energy markets is the focus moving forward. The Gulf of Mexico, where Harvey made landfall and where it will move back toward early this week, accounts for almost 20% of US crude oil production. The Texas Gulf Coast alone houses nearly one third of US refining capacity, or around 5 mln bpd. Yesterday, the DoE reported that 25% of oil and natural gas production in the Gulf had been halted.
> Bottom line. USD/RUB could test support of 58.45 today.