Yellen’s speech pushed March rate hike chances from 28% to
34%; Even if March rate hike looks difficult to me, FED members would want near
50% probability going into every meeting to keep market expectations aligned to
FED’s 2017 intentions of normalizing policy. I would think that the next couple
of weeks will be spent anticipating tax breaks from Trump and that could take
dollar index towards 102.50 (currently at 101.15). Today’s CPI print and Retail
sales data in the US would be an important test for USD after Yellen’s
moderately hawkish comments yesterday.
As we see USD strength returning with US yields rising and
Dow registering gains, which was dubbed as the Trump trade in Nov and Dec 16,
what is different now is that EM currencies are not getting sold off and are
stable to appreciating. USDINR 1m NDF continues to trade 7p left. China is
showing signs of substantially higher confidence with CNH stable, CNH1y forward
points lower near 2000 pips and most importantly Hang Seng Index on 24k. Basis
Dow and Hang Seng I would think Nifty can also break higher towards 9000. I
would carry overnight shorts in USDINR in this environment as intraday
volatility remains low. CMP 66.93, Range 66.98 – 66.80.
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