The markets have calmed down but the Trump-Comey issue is far from over. We could witness a fresh round of volatility when Comey testifies after 29th of May as the exact schedule is yet to be decided. Tuesday 23rd the US draft budget would be tabled but could be ignored by the markets like previous tax cut announcements. On 24th the OPEC meeting is likely to result in members agreeing on production cuts. FED speakers line up this week and we could see them speaking dovish to bring down the June rate hike probability as currently it indicates to a certainty of a rate hike, effectively leaving the FED with no option but to hike, i.e., if yields don’t come down.
Dollar weakness could continue given the political uncertainty in the US and my expectation that US near term yields would come lower to open up the June FOMC meeting. This could drive USDJPY lower towards 110 this week and EURUSD could test new highs. ECB speakers last week suggested that it might signal an exit from accommodative monetary policy in the next ECB policy meeting.
USDINR 1m NDF is trading 7p left while other EM currencies have appreciated moderately on the back of dollar weakness. Equity markets are moderately in the green today. US 10 Y yields at 2.25% along with gold at 1253 is signalling an overall risk off environment. FPI investments continue to come into debt while equity remains mixed. RBI intervened strongly on Friday bringing USDINR lower from 65.00 to 64.65 levels. I would think that given the mild risk off scenario we could see 65.00 again over the next fortnight. CMP 64.45, Range 64.40 – 64.60.
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