Russia FX Beat - February 9, 2018

> Today's focus. CBR decision and US equity market slump.
> Global trigger: US selloff intensifies. This week's hugely volatile run for US equity markets continued, with the S&P 500 falling 3.7% yesterday. Its total decline since a January 26 peak of more than 10% puts it in official correction territory. Asian markets followed the US lower, and Europe should see much the same.
Meanwhile, a temporary government shutdown has kicked in in the US following a failure to strike a budget deal by midnight. This, though, should be short-lived, with the US Senate having just passed a bill and the House set to vote within hours.
This morning, Fed non-voter Esther George reiterated a view that three Fed hikes this year would be appropriate unless the outlook changes "materially." Despite market volatility, Fed comments remain confident for now. Today is quiet for data.
> Bottom line. EUR/USD remains relatively unbothered by US equity turmoil. We have a slight negative bias, preferring a move toward a test of support near 1.2175.
> Regional trigger: CBR to cut 25 bps, ruble down on risk aversion. Yesterday morning and afternoon, USD/RUB traded near 57.8, with exporters trying to push it down, selling sizable volumes of FX. Turnover on the Moscow Exchange was elevated at $6.9 bln, a three-month high. However, after US stock markets opened and started to fall, the ruble followed suit and lost 1.4%. It was almost defenseless, as liquidity dropped after the end of the business day.
Pressure was also on oil, which settled below $64.5/bbl, after Iran announced plans to boost output. Against this backdrop, the ruble significantly underperformed its peers, which lost only 0.5%.
However, this morning, the ruble has gained 0.5%. It seems that exporters continued heavy FX selling at attractive levels above 58. And some profit taking in short-ruble positions may occur ahead of the weekend.
Today at 13:30 Moscow time, the CBR announces its key rate decision. We expect a 25 bp cut. While some anticipate a 50 bp reduction, we see this as unlikely given the increased volatility in global stocks and the ruble.
> Bottom line. USD/RUB may fall below 58 on exporter FX sales and profit taking, unless US stocks continue to fall. However, there is important resistance at 58.2, and a move above this could free the way to 59 if risk aversion intensifies.