Russia FX Beat - September 21, 2017

> Today's focus. Draghi may provide clues about QE tapering.
> Global trigger: Hawkish Fed. As expected, the Fed held interest rates unchanged at 1.25% and announced that, starting next month, it would start shrinking its $4.5 trln balance sheet by $10 bln per month.
The Fed's new "dot plot" did deliver a hawkish surprise, though. Not only did it retain the forecast for a 25 bp hike by year end but it also kept the projection for three hikes in 2018, which would take rates to 2.25%. In her press conference, Chair Yellen expressed confidence in the outlook for the economy, although she said it was a "mystery" why inflation was so low.
The hawkish tone of this Fed meeting has the potential to knock market sentiment. We doubt the Fed will deliver on its three-hike projection for 2018. Yet, if it is to hike again this year (on December 13), the dollar can advance further in the near term. We reiterate our forecast for EUR/USD to ease toward 1.18 in 4Q.
As markets digest the Fed's decision today, they will be looking for guidance from ECB President Draghi, who is due to speak at 16:30 Moscow time.
> Bottom line. EUR/USD can test important support at 1.1850.
> Regional trigger: High oil, low inflation and taxes. For most of the day yesterday, the ruble, following oil price dynamics, was stronger (closing with gains of 0.7%). Brent finished up 2%, breaching the $56/bbl level, amid reported high demand for gasoline in the US and given that refineries are steadily recovering to pre-hurricane levels. Local CPI data also supported the ruble. Weekly CPI growth was again flat, suggesting low m-o-m inflation in September, which would keep real rates higher and make current OFZ yields more attractive to foreigners.
After the Fed's decision was announced at 21:00, the ruble pulled back against the dollar, losing all of its intraday gains. But higher oil prices and tax payments due next week might lead exporters to buy rubles. We think that the Fed's decision was not hawkish enough to significantly decrease demand for risk assets. As a result, foreigners might reopen long positions in the ruble that were closed ahead of the Fed meeting.
> Bottom line. USD/RUB is likely to fall below 58.