Russia FX Beat - August 9, 2017

> Today's focus. Risk-off and profit taking.
> Global trigger: Tension on Korean peninsula. The yen is down by over 1% against the dollar and the VIX picked up 1% overnight amid a significant increase in tensions between the US and North Korea. US President Trump promised "fire and fury" if it continued to threaten the US, to which North Korea responded by saying it could strike the US base in Guam. In addition, according to the Washington Post, which cited a government report, North Korea has successfully developed a nuclear warhead for its missiles. According to other sources, it currently has the capacity to produce 12 nuclear missiles.
Investors have taken profits and shifted to safe-haven assets, and gold is up by over 1%.
The biggest thing to come out of the two-day meeting in Abu Dhabi among the largest oil producers was confirmation by Iraq, the UAE and Kazakhstan, which have lagged in their implementation of output cuts, that they would adhere to them going forward.
Yesterday, the API reported a major draw of US crude stocks of 7.8 mln bbl last week, compared with the market expectation of 2.3 mln bbl. But a surprise build in gasoline stocks, which had risen by 1.5 mln bbl, versus expectations of a 1.5 mln bbl draw, negated the impact in the market. Today, the EIA will release its inventory data for last week. A drop in imports and a further decline in production could boost prices to the $52.73/bbl resistance level.
> Bottom line. EUR/USD is facing strong support at 1.1720, while resistance is currently at 1.1800. Today's dynamic will depend on geopolitics.
> Regional trigger: Range trading, calmness to continue. USD/RUB trading on MOEX continues to remain modest due to the summer lull. Yesterday, bids for dollars by foreigners prevailed, pushing USD/RUB to an intraday high of 60.08 early in the day. FX selling by exporters pushed it back to 59.70 near the end of the session, even in the face of oil price volatility, and it ended up settling a bit higher.
Yesterday, during Rosneft's earnings call, it was confirmed that the Essar Oil deal would be closed in the next few days. The entire deal is valued at $12-13 bln and could have significant implications for FX liquidity. Rosneft's 49% share of the deal is valued at $6.1 bln, including $3.4 bln for equity and $2.6 bln to finance Essar's debt.
> Bottom line. USD/RUB will be subject to EIA data, which, if positive, could push it to 59.69 (the 20d moving average); if not, we see it at 60.30.