Russia FX Beat - June 21, 2017

> Today's focus. Oil prices in sharp descent, ruble cannot resist.
> Global trigger: Quiet. The dollar enjoyed another positive day yesterday, gaining against all other major currencies. Its rise was most pronounced against the ruble (+2%) and pound (+1%) due to individual, negative stories in the domestic arena of both.
The dollar is being broadly supported by the ongoing flattening of the UST curve, driven by both short-end yields pushing higher and longer-term yields falling back. The closely watched 10-2y UST spread has shrunk to 82 bps, down from over 90 bps at the start of June and 100 bps at the start of May.
Bear flattening, i.e. short-end UST yields rising, tends to be positive for the dollar. The UST 2y yield is currently at 1.35%, matching the highs seen in recent weeks. In our view, investors should be prepared for it to break to new highs.
Today is very quiet in terms of scheduled data and events.
> Bottom line. EUR/USD should hold above support at 1.11.
> Regional trigger: 60 firmly in view. As noted above, the dollar was in fine form yesterday, while the ruble was the biggest underperformer, falling by 2%. This adds up to a 5% move in the last week.
The sharp rise in USD/RUB comes after a campaign from officials claiming that the ruble is overvalued. It is also in line with our view for ruble weakness to take hold over the more vulnerable summer months. Our long-held year-end view for 63 is no longer so far-fetched.
The ruble is being hit by the twin forces of renewed oil price weakness and sanctions talk, at a time of the year when Russia's current account deteriorates and dividends are distributed.
The Brent price is in a very clearly defined down channel, with major support near $45/bbl. If this level is broken, even sharper losses in the near term could ensue. One catalyst could be weekly US EIA inventory data, due today at 17:30 Moscow time.
Yesterday the US Treasury added individuals and companies to its sanctions lists in relation to the conflict in Ukraine. This is not to be confused with the more serious sanctions bill making its way through Congress.
> Bottom line. For USD/RUB, 60 is the clear near-term target (this is also close to the 200d MA). Persistent ruble losses create doubt over further CBR policy easing. Weekly Russian CPI data is due at 16:00.