Two key Targets in USDRUB for the Summer
The ECB disappointedeuro bulls on Thursday, as it said it would maintain high level of monetarystimulus in 3Q. It was expected that the ECB will announce that it will soonbegin to reduce the use of the main anti-crisis measure - the Pandemic AssetPurchase Program (PEPP), as the economy is no longer in recession. But judgingby the clear deadlines in the statement ("until the end of the thirdquarter"), the policy of the Central Bank becomes more or less certainuntil the end of the summer. Changes are expected in September, when the ECBwill announce monetary policy 2.0 (aka strategic policy review).
Also, yesterday therewere data on US inflation. Core inflation jumped to 3.8% in May, beating theforecast (3.4%), with broad inflation reaching 5%. The readings seem to beelevated and constitute a positive surprise, but as we discussedearlier , the low base effect counteracts it.The dollar and long-term bonds reacted to the release as if the chances hadincreased that the Fed would start phasing out QE ahead of schedule, butsubsequent dynamics showed that the initial reaction was too emotional and theinflation report did not change expectations for the Fed's actions:
US 10-Year Treasury Yield
If the Fed does not sayanything new at the June 16 meeting (which is most likely), the cheap moneypolicy of the two largest central banks, in fact, will hold out unchanged allsummer. At the same time, it is reasonable to believe that the search for carrytrade will intensify, primarily in emerging markets. This will also befacilitated by reduced volatility, a key component of investor interest in EM,not only due to the Central Bank's soft credit conditions, but also due toreduced activity in the markets in the summer. In this light, special attentionshould be paid to USDRUB. The Central Bank is likely to raise rates today,maybe even immediately by 50 bp, at the same time there is an additionaldownside potential next week, if the Fed does not rush with hints about earlypolicy tightening. Earlier, we also discussed the favorable technical side of the USDRUB short - thebreakout of support at 72.65, which has not been possible since last August:
USDRUB technical setup
Two key targets for thesummer are the levels of 70.45 and 68 rubles per dollar.
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