Russia FX Beat - October 27, 2017

> Today's focus. CBR to cut 25 bps today. US 3Q GDP. Catalonia.
> Global trigger: Draghi delivers. The ECB met expectations exactly yesterday, announcing that it will halve QE to EUR30 bln per month from the start of 2018, continuing it until the end of September. The ECB stressed that given the scale of purchases to date (over EUR2 trln), its reinvestment of maturing bonds will also be very sizable going forward.
Despite a broadly anticipated decision, the euro fell sharply. Investors latched onto the fact that the ECB retained its easing bias (i.e. a pledge to extend or increase QE if needed) and remarks from Draghi that QE is open-ended and will not suddenly stop. The ECB head also described the decision as a "downsize" of QE and not a taper. Either way, the prospect of an ECB hike has been pushed even further into the distance, possibly to mid-2019, by which time the Fed could raise rates by 150 bps.
Today attention is on US 3Q GDP data (15:30 Moscow time). After this week's durable goods orders data, we see slight upside risk to the consensus for 2.6% Q-o-Q annualized growth. Events in Spain should also be watched carefully.
> Bottom line. Although the dollar is rising (the DXY broke above 94 yesterday) and could make further gains in the near term, we do not view this as the start of a significant move higher. We do not believe that EUR/USD will head toward 1.10 and retain a view for it to end the year at 1.18.
> Regional trigger: CBR set to cut 25 bps today. The CBR announces its key rate decision at 13:30 today. We are with the consensus in expecting a 25 bp cut to 8.25%, though there are a decent number of analysts predicting a 50 bp cut.
Outside the decision itself, the focus is on the CBR statement. In reality, there is little need for the CBR to make major changes to its text. If there is a risk, it could be that it removes its upward bias on medium-term inflation, though this would be a major step to take and is unlikely to occur, in our view. The CBR could also introduce new language outlining the possibility of a "substantial and persistent" undershoot in CPI from the 4% target (also unlikely). Lastly, it could refine its prior view that it is possible to cut rates further over the "next two quarters."
> Bottom line. Overall, a 25 bp rate cut need not be a major event for the ruble. If the CBR cuts by 50 bps, this would likely be accompanied by hawkish language. Technically, despite the rally in oil prices, the near-term outlook for USD/RUB is bullish, especially should it close today above 58.