Russia FX Beat - September 26, 2017

> Today's focus. Yellen speaks as dollar and oil both climb.
> Global trigger: Yellen speaks. The dollar was well-supported yesterday, allowing EUR/USD to decline to 1.1850, its lowest level this month. For the time being, the combination of an ECB promising to announce new QE measures on October 26 and a Fed forecasting it will hike rates before year end is proving sufficient to keep a lid on EUR/USD near 1.20.
Today is busy in terms of Fed speakers. However, as is always the case when Fed Chair Yellen speaks, investors listen closely. Yellen will give a speech at 19:45 Moscow time on the topics of inflation, uncertainty and monetary policy. Should she express the same confidence as was on display at last week's Fed meeting, a DXY Index that has since gained by 1% could climb further, perhaps even toward 93.
Data-wise, today's highlight will be US consumer confidence at 17:00. More market moving could be any further escalation of rhetoric between North Korea and the US. Yesterday North Korea said that the US has "declared war" against it, a claim that the US dismissed as "absurd."
> Bottom line. We see downside risks for EUR/USD today, with a move below the 50d moving average and toward 1.18 likely.
> Regional trigger: Brent near $60/bbl. A stronger dollar, events on the North Korean peninsula and the fallout from the German election combined yesterday to generate a rather risk-off market environment. As a result, a flat ruble performance resembled outperformance as compared to EM FX peers.
Clearly, support for the ruble came from surging oil prices. Brent gained 4% to reach a high of $59.49/bbl - its best level since mid-2015. A tightening oil market and threats to Iraqi Kurdistan's oil exports were the main drivers.
The sharp rise in Brent has taken it to a test of a key resistance level just beneath $60/bbl. Early trade today suggests that a break above this level will be rejected, at least for the time being, but for how long is unclear.
Our forecast for USD/RUB to climb toward 60 by year end is based on Brent settling closer to $55/bbl and the dollar being better supported in 4Q.
> Bottom line. The ruble is hesitant to track oil prices higher. Should Brent slip today, USD/RUB could hold above 57.5.