Russia FX Beat - June 28, 2017

> Today's focus. Draghi speaks again, US oil inventory data.
> Global trigger: Euro breakout. The euro surged yesterday on a cautiously upbeat view from ECB President Draghi, who said that "reflationary forces" were now at work in the Eurozone, implying that in such an environment tighter policy might be needed in order to keep its accommodativeness stable.
The market reaction was huge. Eurozone sovereign yields surged, i.e. the 10y German Bund rose by over 10 bps for its biggest increase since late 2015. The euro was higher against all currencies, with the 1.5% rise in EUR/USD rise the largest in a year. Some investors took Draghi's remarks to imply that the ECB might announce further tapering as soon as at its September policy meeting. Although we have a positive view on the euro, yesterday's abrupt market move is perhaps excessive.
By contrast, comments later yesterday from Fed Chair Yellen had little impact. Yellen's view that rates can rise "gradually" and that measures of inflation expectations offer "conflicting signals" offered little new to the debate.
President Trump has suffered a further blow with the Senate withdrawing a vote on a revised healthcare bill. Interestingly, the IMF has revised down its US GDP forecast for this year to 2.1% from 2.3% and for 2018 from 2.5% to 2.1%. The reason is that it no longer factors in any fiscal stimulus.
> Bottom line. EUR/USD has broken above the key 1.13 level reached immediately after the US election. Draghi speaks again today at 16:30 and thus has a chance to clarify his views.
> Regional trigger: Divergence. The ruble has shown impressive resilience to the oil price volatility recently, yet for it to fall 1% yesterday while oil prices climbed 2% is remarkable.
Without an obvious reason for the ruble underperformance it is possible that dividend-related conversions to FX featured, although in truth it is quite early in the season for this. Certainly, there was a strong bid for USD/RUB from domestic companies.
Today, weekly CPI data is due at 16:00 while US EIA oil stocks data arrives at 17:30. Brent prices bounced back overnight to a surprise build in API inventories, versus the consensus of a 2 mln bbl drop in today's crude inventories.
> Bottom line. Today is the final tax day of the month with corporate profit tax due. USD/RUB could drift lower toward 59.