Russia FX Beat - November 15, 2017

> Today's focus. Risk aversion rising with important US data due.
> Global trigger: Dollar relapse. The euro rose for a fifth straight day yesterday and was the top performing currency, gaining more than 1% against the dollar. The catalyst came early in the day, with German 3Q GDP powering ahead 0.8% Q-o-Q. The dollar's losses have subsequently broadened out, boosting other liquid currencies such as the yen and the pound.
Today there is a heavy US data schedule. The most important data points are October CPI and retail sales, due at 16:30 Moscow time. Both are expected to fall back notably following strong hurricane-driven gains last month. However, whatever the outcome, we do not see the data changing the strong conviction of investors that the Fed will raise rates by 25 bps on December 13.
> Bottom line. Decent US data could keep EUR/USD near 1.18.
> Regional trigger: USD/RUB breaks our year-end target of 60. Despite dollar losses versus major currencies, EM currencies continue to slide. The big stories yesterday were rises in EUR/TRY to a record high and a move in USD/RUB above 60 for the first time since mid-August. With the euro outperforming, EUR/RUB registered a rare 2%+ d-o-d gain.
While strengthening oil prices have insulated the ruble during the recent EM FX selloff, yesterday's decline in oil prices contributed to the ruble's underperformance. To this end, US EIA oil inventory data today at 18:30 will be important.
With USD/RUB having reached our year-end target, we must now reconsider the outlook for the next few weeks. We continue to believe that the ruble might enjoy support at the end of the month, as higher oil prices result in higher FX sales by exporters. However, a deteriorating risk environment is a potentially more powerful and durable force.
Despite the current market jitters in the EM space, we do not see strong reasons for the situation to deteriorate dramatically, although this cannot be ruled out. Yet if USD/RUB can hold above 60 and the backdrop remains unsupportive, a test of the YTD high of 60.99 is easy to envisage. A more onerous redemption schedule is also noteworthy.
> Bottom line. For now, we prefer to bide our time with our ruble view. In the rates space, ruble weakness will offset previously building momentum for a large CBR rate cut on December 15 given the sharp disinflation. Weekly CPI is due today at 16:00. USD/RUB targets 60.50.