Merkel comments on the Euro (Germany’s trade surplus is
because of a weaker Euro) indicate that there is some pressure on Germany from
USA to correct the trade imbalance. It was not yesterday that Euro weakened or
German trade surplus increased so the timing of the comment indicates that in
the background there have been talks of how a weaker Euro is hurting the US.
This comment coupled with ECB statements indicating confidence last week, and
the data release from the EU, indicates that the Euro might be heading to 1.15
and higher.
FED speakers called for 2 more rate hikes today morning
although Harker did not speak on monetary policy. Looking at US 10Y Yields,
USDJPY and equities, the risk off created due to US political uncertainty is
not over as yet and therefore that will be my baseline theme for market action
immediately.
USDINR 1m NDF has moved right and is trading 5p lower only.
KRW has depreciated slightly since yesterday while Indian equities are in the
red. The buying in USDINR shows that there is some India specific
outflow/factors which is driving the pair higher, could be the increasing trade
deficit story (April was -13b $ as compared to -10b $ in March) and seasonality
thereof; but still a conjecture. Debt inflows continue indicating a positive
view on India as far as FPIs are concerned which gives weight to the trade
deficit hypothesis. I would continue to expect 65 – 65.25 on USDINR in May. CMP
64.78, Range 64.70-64.95.
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