The US dollar was under pressure for most of the time.

In the first four days of the last trading week (DXY) lost about one figure, and only the release of Friday’s strong data on the U.S. labor market could somewhat level this decline.

Weak U.S. industrial data and opinion polls in Britain contributed to the growth of European currencies.

Last Monday, indices of business activity in the industrial sphere of the EU and the United States were published. The index for the European economy showed growth from 46.6 to 46.9 points, while the index of business activity in the United States from ISM decreased from 48.3 to 48.1 points (consensus, on the contrary, assumed an increase of the indicator to 49.2 points). Weak data on U.S. industrial production gave the first impetus to a moderate weakening of the dollar on FX. At the same time, over the past week, opinion polls in Britain have been published, which so far confirm the leadership of B. Johnson’s party, therefore, the probability of an early signing of a divorce agreement with the EU and reduce the risks of Britain leaving the EU without a deal, which is positive for the euro and the pound.

The dollar index (DXY) on this background on Thursday evening fell to the area of 97.40 points (lows since the first number of November). Friday’s statistics on the U.S. labor market contributed to the correctional recovery of the U.S. currency: the number of jobs created in the non-agricultural sector amounted to 266,000. jobs (with a forecast of 185-190 thousand), the unemployment rate decreased from 3.6% to 3.5%, and the rate of hourly wage growth in annual terms amounted to 3.1%.

Trading activity this week may increase markedly.

The coming week is filled with a large volume of significant events for global markets: the meeting of the Federal Reserve (Wednesday), the meeting of the ECB (Thursday), the elections to the British Parliament (Thursday), the expiration of the deadline for the possible imposition of duties by the United States against Chinese imports (Sunday) – all this can lead to an increase in volatility in the second half of the week. From the two regulators market participants in the basic scenario do not expect a change in the current monetary rate, but the fed meeting will be interesting to publish updated forecasts of the FOMC on the further dynamics of rates, and the meeting of the ECB will be the first, held under the leadership of K. Lagarde. In Britain, according to opinion polls, Johnson’s party is the clear favorite, and if they win, the probability of signing a divorce agreement with the EU increases. As for the topic of trade relations between the United States and China, we note that China has made another gesture of “goodwill” in recent days, softening a number of tariffs on the supply of soybeans and pork from the United States.

The main group of EM currencies last week showed a moderate strengthening.

The pair returned to the range of 63.50-64 rubles/dollar last week. Against the background of the general weakening of the dollar on FX, most EM currencies were able to demonstrate positive dynamics: the Russian ruble, the Mexican peso, the South African rand, the Chinese yuan added against the dollar 0.3-1.5%, and the strengthening, for example, of the Brazilian real and did amount to 2.3%.The general ratio of global investors to the entire EM group of currencies remains a key driver for the short-term dynamics of the ruble.

Volatility in the ruble continues to decline.

As we noted earlier, domestic factors in the ruble in recent months have a predominantly neutral effect on the ruble, and low activity in global markets in recent weeks contributes to a marked decrease in volatility in the Russian currency. The indicator of implied volatility of the ruble last week fell to 7.6%, which is the lowest since the end of 2013 -early 2014 (even before the introduction of the “free float” regime of the ruble). From our point of view, this is partly a testament to the stable current macro situation in Russia, but partly it may also indicate that the current prices of Russian assets do not put the remaining risks. According to our model, the current ruble exchange rate, for example, does not take into account sanctions risks, which poses a threat in the event of a new wave of escalation of this problem.

Trading activity in the ruble this week may also be elevated.

The coming week will be filled with important events both for the global market (listed above) and separately for Russian assets (today’s meeting in Paris in the Normandy format, a vote in the U.S. Senate Foreign Relations Committee on sanctions against Russia on Wednesday and Friday’s meeting of the Bank of Russia). As for the topic of sanctions, we note that the bill under consideration includes both relatively insignificant measures (sanctions against individual courts and shipbuilding companies) and very significant (such as sanctions against the national debt and, for example, energy projects of the Russian Federation). At the same time, let us note that so far we are talking only about voting in the profile committee, and not voting of the Senate as a whole, respectively, the process of working on the bill can be quite long.

Fundamentally, the ruble exchange rate is completely locally overvalued.

According to our model, with oil prices near $64/barrel. and the current level of key macro indicators, the equilibrium dollar/rouble rate is near the 65 ruble/dollar mark. In our opinion, the ruble exchange rate is locally overvalued, but the scale of this revaluation is not so significant as to have a pronounced impact on the short-term dynamics of the ruble. From internal factors, we note that the current account is seasonally close in November and December, the volume of tax payments in December after low november volumes returns to the norms slightly above average, and the end of the year is traditionally accompanied by an increased volume of payments of Russian companies on foreign debt, but when the local currency deficit, the Bank of Russia uses mechanisms to provide it (e.g. currency swap), which reduces the tension in the market.

In the basic scenario on the horizon of the next week continue to focus on the range of 63.50-64.50 rubles/dollar, but note that the volatility in the ruble this week may increase markedly.

EUR/USD

Mikhail Poddubsky, Promslinkbank