Russia FX Beat - September 28, 2017

> Today's focus. Dollar on a march, carried by Fed and Trump.
> Global trigger: On a tear. The dollar has gained 1.5% so far this week, as measured by the DXY Index. As a result, EUR/USD has rapidly reached our 1.18 forecast for year end. Our view is that EUR/USD might push to as low as 1.15-16 but should settle closer to 1.18 by year end.
Dollar appreciation has come during a busy week for Fed speakers. The general tone has been confident and has resulted in pricing for a December US hike firming to nearly 75% from 60% at the start of the week. As this moves toward being fully priced, the dollar will derive a moderate amount of further support.
Overnight, US President Trump released an outline of his tax plan. The nine-page document is very light on detail, with proposed tax giveaways not costed. It will also face a tough time getting through Congress. We do not expect the dollar to enjoy lasting support from this theme.
Today the US sees revised 2Q GDP and August trade data (15:30 Moscow time). Fed officials Esther George (16:45) and Stanley Fischer (15:00) also speak.
> Bottom line. It would be reasonable for EUR/USD to take a breather following its sharp decline this week. Yet there is little to support it until the 1.1700 area.
> Regional trigger: 3% CPI to give CBR a headache. The ruble weakened further yesterday, caught up in the broad dollar rally. MICEX turnover was healthy, maintaining this week's sizable volume. Turnover yesterday of $7 bln was the highest since June, a time when USD/RUB surged from 58 to 60.
CPI data yesterday showed w-o-w inflation flat for a third straight week. Currently it looks like y-o-y CPI in September could slow to 3.0% from 3.3% last month. The market is barely convinced that the CBR will cut the key rate by our forecast of 25 bps at its next meeting on October 27.
At the very least, we can say that 3% CPI could provide a presentational problem for the CBR, with investors questioning whether it would represent the "substantial and persistent" departure from its 4% target that warrants a larger policy reaction. Most likely, the CBR will cite its forecast that inflation will rise to 3.5-3.8% by year end for easing only 25 bps.
> Bottom line. Today is the last tax day of the month (R200 bln profit taxes due), but USD/RUB is biased higher. Key resistance is at 58.45-58.50, where the 100d and 200d moving averages converge.