Russia FX Beat - January 22, 2018

> Today's focus. US and German politics. Tax week in Russia.
> Global trigger: German breakthrough. The dollar stabilized in the second part of last week. Our near-term focus is on the US Treasury market, where the 10y is on the cusp of a major break higher. After already moving through the 2.50% mark earlier this month, on Friday it closed above 2.63%, the major high from March of last year. A break beyond this would quickly lead to calls for a move to 3%. USD/JPY and USD/CHF are most positively correlated to the 10y yield, followed by USD/AUD and USD/NZD. By contrast, the ruble exhibits almost no correlation.
For the week ahead we will focus on three main events: the BoJ (tomorrow) and ECB (Thursday) decisions and US 4Q17 GDP (Friday). Investors will look closely for any signs from the BoJ or ECB that exit strategies from QE are being considered. This is unlikely, given the aggressive market moves this would produce. Mario Draghi might seek to talk the euro lower.
Markets open this week digesting negative political news flow from the US, where a partial government shutdown has started - the first since 2013. Developments in the eurozone are more positive, with Germany's SDP agreeing to enter formal talks with Chancellor Merkel in a bid to form a new ruling coalition.
> Bottom line. Overall, we prefer the yen to the euro this week against a soft dollar. The risk is that Draghi will talk the euro lower on Thursday. If this does not happen, EUR/USD could test 1.23.
> Regional trigger: OPEC+ keeps to cuts. Thursday is this month's deadline for exporters to make MET payments. According to our estimates, thanks to the rising oil prices, the total amount due is a historical high of R460 bln. Against this backdrop, exporters are likely to increase FX sales starting today.
At a meeting of OPEC+ members this weekend, major players including Russia signaled an intention to maintain current output cuts through to year end and to continue coordinating into 2019. It was noted that around a third of the current oil surplus remains and still needs to be cleared. In all, oil prices should be supported from this past weekend's news flow.
> Bottom line. The risk for the ruble this week is that the US government shutdown spills into broader global risk aversion, though there is no sign of this so far. However, the ruble will enjoy tax-related support, which in isolation would help USD/RUB toward 56.