INR update: Magnified reaction in Rupee as compared to other EMs

Risk off continues even though a video showed Comey, under oath, testifying that there was no obstruction of justice, but that was before he was fired. Stronger US data along with this video contributed to the partial retracement in the Memo Gate move across asset classes. ECB minutes showed that confidence in policy makers is growing which should help EURUSD move higher in the current USD weakness move. Brazilian assets are under stress because of fears of its President getting impeached.

The main story yesterday was in USDINR which moved much more than other Asian and EM currencies. This was a reflection of the naked USDINR shorts markets were running before the Memo gate move, as stops got triggered. Anecdotes suggest that large USDINR buying in the offshore market contributed to the move, indicating unwind of carry trades. USDINR 1m NDF is trading 3p left as compared to 4p yesterday. 3p left spread shows that there is room for significant buying in the offshore market if the sentiments warrant. The view for USDINR till 24^th May remains on the higher side with 65.15 as the first target with stop below 64.60. For the day, CMP 64.81, Range 64.70-64.95.