INR update: No rate cut but inflation forecasts will be watched

Mild risk off sentiment continues to grip markets ahead of Comey’s testimony on Thursday 10 AM ET even though the Qatar situation has alleviated. ECB policy on Thursday could give fresh direction to Euro while a surprise Teresa May defeat in UK elections can increase uncertainty thereby creating risk off sentiment. EURUSD is too uncertain a pair to trade under these circumstances as multiple factors are at play. USDJPY has continued to trend lower in spite of higher equities which make short USDJPY my preferred trade for the eventful Thursday ahead. I would look for a pull back towards 109.75 and 110.30 to create shorts for a move towards 108.20 by Friday with a stop above 110.60.

USDINR 1m NDF is trading 4p left as compared to 6p yesterday. USDINR gave a higher open at 64.48. Both of this would make me believe that the QIP flow of nationalized bank that is being talked about is already digested in price. Asian equities are flat to mildly positive along with Nifty. Debt inflows continue as RBI continues to buy. Expecting risk off sentiment to prevail due to Comey testimony, I would expect INR appreciation to be limited to 64.35/64.40 levels for the day. RBI is expected to stay on hold but a downward revision in inflation forecast could drive yields lower leading to mild INR appreciation. I would buy USDINR at 64.40 levels for the next couple of days for a move towards 64.75 levels. CMP 64.47, Range 64.35-64.65.