The war in Syria is going on for 4 years now and today US struck
Syrian airfields with missiles, it was partially expected after the Tuesday
chemical weapons attack and the markets reacted with mild risk off moves. US 10
Y which in my view will be the main indicator of a risk off sentiment developing,
quickly jumped back above 2.3%, which is being looked at by the markets as a
critical support. A weekly close below 2.25% on 10 Y therefore can spoil risk
sentiments across asset class.
Markets are expecting US data to be strong and therefore a
weaker NFP can take yields lower and result in dollar selloff while a stronger
number could be easily digested
(consensus at 175k and earnings growth at 0.3%). Meanwhile the ECB seems to be
taking a step back now and from what Draghi said yesterday, it seems that the
ECB is likely to continue with the accommodative stance. This can keep EURUSD
offered in the medium term.
Yesterday, I changed my view of a buy in USDINR at 64.80
levels for a move higher, for the medium term, to a sell USDINR for a target of
63.50. This is basis RBI’s allowing INR appreciation yesterday after the
monetary policy, similar to Feb 2017, which should be a strong signal to the
markets about their intentions. The reason for this change of policy could be many
and one of them could be to stay out of the US blacklist of currency manipulators.
Last week the US has come out with a list of 16 countries that it will investigate
for the next 90 days, for Trade and currency manipulation, which includes
India. On the other hand reports suggests that Modi is trying for a bilateral
meeting with Trump in May 2017, to address the H1B visa issue. Given this
backdrop, perhaps India is choosing a stronger currency policy in the visible
future.
EM currencies have mildly depreciated on the back of Syrian
news. Participants in the USDINR market seem to have a consensus view of a sell
now with 64.50 being watched as a support, a break of which can take us to 64.30
in a hurry. There were murmurs of nationalized banks buying at 64.60 but the
price didn’t hold. CMP 64.52, Range 64.30-64.65.
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