Russia FX Beat - August 3, 2017

> Today's focus. EUR/USD and USD/RUB testing major highs.
> Global trigger: EUR/USD overstretched. EUR/USD yesterday briefly rose as high as 1.1910, its highest level since January of last year. The spike was the third such occurrence after 16:00 Moscow time in six days, suggesting a specific market strategy is in play. As we discussed yesterday, the relentless rise in EUR/USD may well take it to 1.20 soon, but we do not expect it to sustain such a level throughout 3Q.
Overnight several Fed members spoke. Overall, they were non-committal, signaling varying degrees of concern over low inflation. Non-voter John Williams said that an announcement that the Fed will start to reduce its balance sheet seems reasonable for its September 19-20 meeting.
Today the US sees weekly initial jobless claims at 15:30 and non-manufacturing ISM at 17:00, ahead of tomorrow's monthly labor report. At 14:00 the BoE announces its rate decision. A hike from the current 0.25% is, in our view, extremely unlikely.
> Bottom line. EUR/USD risks another late-afternoon rise.
> Regional trigger: Sanctions weigh on ruble. USD/RUB traded as high as 60.84 yesterday, moving closer to a test of the 60.99 high from July 11. The ruble failed to participate in the oil price rally that started around that date, though it has fallen sharply this week as the rally has leveled off. The negative pressure on the ruble is hence clear.
One source of pressure has been the rapid passage of new US sanctions on Russia, which were signed into law yesterday by President Trump. Although this had been anticipated, the new sanctions warrant a greater risk premium for the ruble, as the path ahead for US-Russia political relations is now even more troubled. There is also uncertainty over what is to come of forthcoming deadlines set within the bill. In particular, in 180 days a report is required on the potential impact of sanctioning purchases of Russia sovereign debt and derivatives.
At 12:00 today the Finance Ministry will announce its purchases of FX in August. In July a trivial amount was bought, while for the month ahead the consensus is for total purchases of R23 bln or around $16 mln per day. We expect a figure of around $30 mln per day, but this is still rather inconsequential.
> Bottom line. USD/RUB is biased toward a test of 61 today.