Russia FX Beat - February 14, 2018

> Today's focus. US CPI data to keep investors on edge today.
> Global trigger: US CPI data. Global financial markets are stabilizing, with the S&P 500 yesterday gaining for a third straight day. In line with this, the DXY index has also fallen for three days in a row.
Cautious trading might prevail ahead of US CPI and retail sales reports for January (16:30 Moscow time). A jump in US wages played a large part in triggering the recent market turmoil and gives today's inflation numbers added importance. The consensus actually sees the CPI moving lower in y-o-y terms at both the headline (from 2.1% to 1.9%) and core (1.8% to 1.7%) levels, so any upside surprise may lead to a very sharp pullback in risk sentiment.
To be clear, debate about US rate hikes does not concern the March 21 meeting, a 25 bp hike at which is fully priced in already. Fed Chair Powell did not question this in comments yesterday. Still, markets are yet to be convinced that the Fed will raise rates three times in 2018, let alone four, as some expect.
> Bottom line. So long as the US CPI data does not surprise on the upside today, EUR/USD can probably test the 1.24 level.
> Regional trigger: Ruble's resilience may be tested today. Yesterday, the ruble was trading in a narrow range of 30 kopecks. Market activity was pretty light, with daily turnover decreasing for the second day in a row, to below $4 bln.
An IEA report showed an increase in the organization's oil demand growth forecast to 1.39 mln bpd from 1.26 mln bpd. Nevertheless, the new figure is still rather pessimistic relative to OPEC's forecast. On the report, Brent temporarily retreated below the $63/bbl level. Against this backdrop, there seemed to be a single large purchase of FX, which pushed the ruble weaker, but it quickly recovered, demonstrating resilience. Overall, it appreciated by a mild 0.35% yesterday.
This morning, the ruble is again gradually appreciating, in line with EM peers, amid broad dollar weakness and the risk-positive mood in global equities markets. If the US inflation data is in line with expectations, we expect these trends to continue. But if it turns out to be stronger than expected, global markets may correct sharply, and the ruble will be significantly pressured.
> Bottom line. USD/RUB may finish the day below 57.5 unless we see strong US CPI data, which could push it back above 58.