World equity markets corrected from August beginning on the back of North Korea tensions and speculations of tapering by ECB along with balance sheet reduction by the FED. Since then North Korea tensions seems to have cooled off, ECB seems to have postponed its plans and the FED is awaited. The FED seems to pre-committed to go ahead with balance sheet reduction and the market seems to have digested the news already. This change in global construct in the last 1 month could drive global equity markets for a week towards new highs.
There is news that Trump might visit China in November 2017 and that might ensure that PBOC keeps USDCNH alone and therefore CNH appreciation could continue. Last time Xi and Trump met in April, the US ended up igniting the North Korea debate which required 5 months to cool off. This time perhaps Trump has learnt his lessons and the discussions could end up being more risk positive.
I would think that the dollar index broke the 200 week MA (92.60) convincingly on the 8th Sep 2017 after hovering around those levels for 1 month. Immediately after breaking those levels it went down to 91 levels which shows follow through. After this significant breakout I would continue to trade for further dollar weakness and expect Euro to head towards 1.21. USDJPY becomes more complicated as higher equities brings new bids into the pair even though I would think the safe haven logic doesn’t apply to Yen against USD in the current risk on environment. GBPUSD has given a significant breakout above 1.3250 and looks like headed higher.
India CPI came in higher than expected without affecting markets. High frequency data locally shows some amount of slowdown in economic activity as FPIs continue to pull out money from equity markets. DIIs make up for FII selling and this is perhaps attributed to demonetization cash coming into main stream. Overall one needs to watch out for local macros including growth and CAD.
USDINR 1m NDF is trading 5 p left with mild appreciation in KRW and CNH since yesterday. Equity markets in Asia are flat as nationalized banks continue to buy USDINR. The conviction in USDINR breakout lower is waning as time passes but a breakout higher looks as unlikely. Range for the next fortnight seems to be 64.20-63.65. For the day CMP 64, Range 64.05-63.90.
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