Russia FX Beat - January 30, 2018

> Today's focus. Russia sanctions reports, Trump speech.
> Global trigger: State of the Union. The dollar enjoyed a decent day yesterday, recovering a portion of its recent losses. With the euro retreating yesterday, high beta plays on the euro such as the Hungarian forint and Polish zloty sold off even more sharply.
US data yesterday was in line with expectations, reinforcing tomorrow's Fed decision as a non-event (see our preview - "Yellen's Quiet Swan Song"). The main near-term event is President Trump's State of the Union address overnight 5:00 Moscow time. The extent to which he pushes his "America First" agenda will be important.
> Bottom line. EUR/USD is taking a breather ahead of the Fed decision. The DXY index has for now rejected a move below the mid-2010 major high of 88.7.
> Regional trigger: Sanctions report. US reports on potential new sanctions on Russia have been partially released and appear to contain little fresh to concern markets. Importantly, nothing has been publicly released about a potential ban on investment into Russian sovereign bonds. Comments from officials seem to indicate that this report has been kept classified, although details could yet filter into the market. Overall, the absence of any official analysis in the public domain might be greeted with relief in markets today.
Separately, an unclassified version of the "oligarch report" was released, containing 114 senior figures in the Russian state or state-owned companies and 96 "oligarchs." To be clear, no new sanctions have been imposed on these individuals. It is likely that the more interesting details have been held back in the classified part of the report.
In all, although we cannot rule out more information coming out, at this point this major event risk looks to have passed off calmly. There does not appear to be the desire from the US administration to push hard for new actions against Russia at this juncture.
If this is indeed the case, it could spark some relief in local markets - both for bonds and FX. However, this might be tempered by what is sure to be some hawkish rhetoric coming from other elements of Washington in the coming hours.
> Bottom line. USD/RUB may head to 56 if no negative sanction-related news emerges. Yesterday, the ruble strongly outperformed other EM FX helped by demand for the ruble from larger exporters.