USD strength returned on the back of very strong retail sales and manufacturing survey data which should result in Q2 GDP getting revised upwards. Dudley confirmed that markets can expect USD 10 bn per month of balance sheet reduction in Q4 along with another rate hike, both reemphasize that the FED is on track. A surprise here was something that I was looking at for USD index to break 200 week moving average of 92.3 and now if the FED is sticking to the plan USD index could remain range bound till Jackson Hole on the 24-26 Aug. In Jackson hole Draghi’s comments could be the trigger for Euro to move higher. NK tensions have gone on the back burner for now. Today we have the FOMC minutes, EU GDP and US housing starts.
India – China border disputes seldom result in any violence and to that extent the stone pelting incidence between India – China in Ladakh is unusual and could create mild risk off for USDINR, as the Doklam standoff continues. China in line with its stand of no talks did not attend the meetings with army on the 15th of August.
USDINR 1m NDF is trading 3.5p left indicating reduced selling pressure. EM currencies have depreciated mildly on the back of dollar strength. 64.20-64.30 is a strong resistance zone for USDINR and a weekly close below/above these levels could signal the next move for the rest of August. FPIs don’t have limits for debt investments while in equities we are seeing chunky outflows for now. I would sit square now and wait for the 64.20-30 levels to break comprehensively. CMP 64.25, Range 64.15-64.35.
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