US Manufacturing ISM puts rest to concerns of significant Q2
slowdown and consequently US yields went higher with 10y at 2.35%. Equity
markets celebrated the positive data and higher yields indicating positive sentiments
to hawkish central bank rhetoric if data continues to support. Employment
component in the manufacturing ISM could indicate to a stronger NFP number this
Friday. US10 Y yields had a resistance zone at 2.3-2.33% and a break of this
could indicate a move higher for US yields. USD index has a strong support zone
at 95.4-95.8 and seems that we have got a bounce from there. Given that the ECB
is also on a possible tightening path, EURUSD might not reflect dollar
strength. USDJPY therefore could be a better pair to trade this medium term
dollar strength view of perhaps 2%.
EM currencies continue to negatively respond to higher DM
yields with USDKRW trading above 200 DMA now. USDINR 1m NDF is trading
2.5p left only. Most participants had not bought USDINR against the carry
and an open above 64.90 on any day can drive the pair quickly to 65.20
levels and otherwise 64.80-64.85 should continue to be a strong resistance.
Debt inflows which were one of the major factors behind INR strength are likely
to slow down now as limits would stay at 5% of GSEC stock and room for
incremental investments is small in spite of the expected limit increase
yesterday. Participants seem to be buying USDINR on dips since morning today.
CMP 64.80, Range 64.72-64.89.
As RBI has increased the investment limit in bond then flow should increase
ReplyDeleteThe limit increase is no surprise as it was increasing by similar amounts every quarter. There was a slight anticipation in the market that RBI would increase the overall limit cap from 5% of GSEC stock to may be 7.5% and continue to increase limits every quarter, this has not happened. Now the limits have touched 5% and further increase to these look unlikely. Further as the limits go into more than 90% zone, an auction will be required for FPIs to invest which will make the inflows difficult to time and therefore the remaining amounts will take more time to come in.
ReplyDelete