Trump has not tweeted his mind for more than 24 hours now
which is unprecedented in the last 6 months. The issue is more serious than
what equity markets are pricing in even now as obstruction of justice has been
taken up strongly by both the parties historically. Needless to say that there
will be enough members of the Republican party also who would want to use this
opportunity to create trouble for a not so popular President. Comey testifies
sometime next week and regardless of the end result, the ongoing risk off
scenario is likely to continue.
Yesterday I expected June rate hike expectations to come
down from 95% to below 70%. Yields have brought it down to 86% already and I
believe that such a high percentage will be troubling for FED members given the
political situation. 86% suggests that a rate hike is given and therefore I
would expect this to fall in the 60-70% range over the next few days, driving
US yields lower and USDJPY towards 110 and lower levels.
Most participants were not expecting such a sharp move in
USDINR overnight and there were some short positions which would now be exited.
The crisis is not clear enough for people to stick out their necks and sell as
yet. Risk on carry trades involving INR would be unwound. USDINR 1m NDF is
trading 4p left only as compared to 7p yesterday. USDINR could see 64.65 or
higher in a few days, as Nationalized banks would not intervene in a global
risk off, and therefore I would want to enter only from the buy side. CMP
64.40, Range 64.32-64.55.
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