Russia FX Beat - July 21, 2017

> Today's focus. Quiet day ahead, but euro on a tear.
> Global trigger: Euro unleashed. EUR/USD stormed higher yesterday to its best level since January 2015. The main catalyst was ECB President Draghi's press conference, which seemingly did not do enough to halt a view that the central bank will announce a pull-back from its huge QE program as soon as September.
In our view, Draghi actually did little to spur a much stronger euro. He said that the ECB was unanimous in choosing not to alter its guidance and that no discussion on tapering had taken place. He added that a tightening of financing conditions is the "last thing" that the ECB wants.
We therefore conclude that FX positioning is playing an outsized role in forcing EUR/USD sharply higher. At its current level near 1.1650, EUR/USD is staring up at several critical resistance levels. We also note that although volatile yesterday, benchmark German Bund yields are lower this morning than they were just prior to the ECB decision.
Outside of the euro story, the dollar continues to trade with a weak bias. Press reports yesterday that US special counsel Robert Mueller will expand his investigation to look at President Trump's business transactions have not helped.
> Bottom line. There is no meaningful data today. We think EUR/USD is stretched, yet sentiment-driven markets could push it toward 1.17.
> Regional trigger: CBR decision back in the balance. Ruble volume was again moderate yesterday at $3.6 bln. With USD/RUB edging beneath 59 and volatility subsiding, this builds the case for a 25 bp rate cut from the CBR in a week's time (though our view remains for an unchanged 9% key rate).
The stability of the ruble belies the fact that we are in the midst of the corporate dividend season. Today is the deadline for several companies to pay dividends, which might generate some residual demand for the ruble. However, next week might see this flip, with dollar demand approaching $0.5 bln as recipients convert dividends received into hard currency. This, though, could potentially be dwarfed by FX sales of $4 bln+ to cover tax payments due July 25-28.
> Bottom line. USD/RUB is a mixed story for now, but a positive EM FX backdrop together with local demand for the ruble over coming days suggests a USD/RUB test of 58.50.