Russia FX Beat - October 23, 2017

> Today's focus. Confrontation in Catalonia.
> Global trigger: Catalan confrontation, Abe wins election. On Saturday, Spanish Prime Minister Mariano Rajoy announced his intention to dismiss the Catalan government and suspend Catalonia's autonomy. In response to this plan, which Catalan leaders called a coup, a march was held, for which half a million protesters showed up. Today at 10:30 local time, Catalan authorities will meet to craft an official response. They may declare independence. The euro is edging lower and could come under further pressure if the situation escalates.
In Japan, Prime Minister Shinzo Abe's ruling party scored a big win in Sunday's election. This has eased fears of the BoJ's super-dovish policy being tightened, weakening the yen and sending Japanese shares higher.
The main focus this week will be the ECB's policy decision on Thursday. The central bank will announce its plans for QE in 2018, with its current EUR60 bln per month of asset purchases scheduled to wrap up at the end of this year. The overriding aim of President Draghi is to reduce the pace of QE without triggering further euro appreciation. This could probably best be done by lowering purchases to EUR20-30 bln per month, but extending the program through 3Q18 or even the end of 2018.
> Bottom line. The dollar should continue to firm, while EUR/USD might fall below 1.1750.
> Regional trigger: Taxes and dividends. On Friday, the ruble weakened moderately but continued to outperform major EM peers. This trend might continue this week amid major tax payments (MET and VAT are due on October 25). Exporters are likely to ratchet up their FX selling, so the ruble could be resistant to dollar strengthening and possible risk-off sentiment if the situation in Catalonia worsens.
Still, we do not see much room for the ruble to appreciate further in the near term. The bulk of interim dividend payments is to be made this week. Of the circa $2 bln to be paid, $0.7 bln will come from Rosneft alone. Net FX buying should be relatively moderate, at $1.1 bln, but still significant. Later this week, this will likely neutralize the positive impact from exporters' elevated FX sales.
> Bottom line. FX selling for tax payments will make the ruble more resistant to possible negative global developments. USD/RUB will hover near 57.50.