If North Korea fires a long enough ranged missile then it has to either fly over SK or Japan before reaching any target, so the headline should actually read that NK tests another missile rather than fires a missile over Japan. Japan did not try to shoot down the missile the last time around or this time either indicating that it knew it is a test and its cities are not at risk. NK is arming itself to prevent a regime change and has Chinese and Russian blessings therefore all NK related risk off should be bought into.
In the US, chances of Trump passing a tax reform have increased driving yields higher. Although Trump might be getting into a political complication by garnering support from the opposition leaving his fellow republicans seething. Today we have the retail sales while the FOMC on the 20thwould ensure that dollar sellers wait it out before creating new shorts.
USDINR 1m is trading 3p left only while other EM currencies have not depreciated on the back of the NK missile test news. More worrying in India is the continuous large FPI outflows from equity markets locally (in the last 1.5 months we have seen outflows of almost $3bn). This along with a strong RBI resolve to protect INR appreciation could lead to an uptick in USDINR if we get a weekly closing above 64.25. On the other hand IPO flows over the next 1 week could provide support to INR. CMP 64.11, Range 64.05-64.25.
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