Trump’s failure to get the new healthcare bill passed, drove UST yields lower as markets extrapolated the outcome to the September 2017 budget. On the weekly chart USDINDEX can go as low as 92 (CMP 94.75) but ECB might create an uptick tomorrow as it might be too early for it to act before the FED does (on balance sheet reduction). US data surprise index (Bloomberg) which registered a mild uptick in the beginning of July after 2 months of continuous decline, is moving lower again. On the other hand Bloomberg’s EU data surprise index is moving higher from the lows made in end June.
RBI has asserted in the past that it intervenes in foreign exchange markets only to curb volatility. Currently the volatility is at historical lows and the price action and RBI reserve trends, makes me believe that RBI is intervening heavily. Therefore at some point of time RBI would need to allow appreciation if dollar weakness and EM currency strength persists.
USDINR 1m NDF is trading left at 6p which indicates offshore selling pressure. KRW and CNH continue to register mild appreciation. Equity markets are supportive of risk sentiments while debt inflows continue. Given the fact that RBI has neutralized all sellers of dollars for the last few days we can see an uptick to 64.40-64.45 if RBI does not sell as well. These would be good levels to create shorts. If the central bank decides to pause only then INR appreciates. CMP 64.33, Range 64.28-64.42.
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