The fact that BOE vote was hawkish proves that central banks
have changed direction and the era of accommodative policy is perhaps over. BOE
vote gave further credibility to FED’s plan which the market seemed to be
doubting and consequently we saw US10 Y yields rising mildly and USDJPY
reacting sharply.
To reiterate, I expect USD10Y yields to move towards 2.25%
(Currently 2.17%), USDJPY towards 112+ (currently 111.15) and GBPUSD to move
lower towards 1.2550, by next Friday. Today EU inflation data can trigger a
either direction move in EURUSD. Noteworthy is that EU data surprise in the
recent past has turned lower.
USDINR is moving along with other EM currencies as US yields
rise and USDJPY heads higher. USDINR 1m NDF is just 2p left now indicating
buying interest in the pair. A move to 64.85 would be just in line with other
related pairs like CNH, KRW and SGD. I would remember that RBI would use this
opportunity to sell dollars so as to create room for further intervention
during the year, or in other words the need for RBI to sell dollars will
prevent a runaway move in USDINR. Therefore around 65 levels exporters can look
to sell longer term. In the intraday and 1 week horizon the view on USDINR is
for the pair to go higher. CMP 64.69, Range 64.55 – 64.85.
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