EURUSD respected the 200 WMA at 1.1720 as USD index got rejected at 93.65. US 10 Y yields retraced from 2.36% to 2.32% as market digested the tax reform plans. With the FED projecting 3 rate hikes for 2018 and market factoring in 1 hike only and tax reforms looking like creating a fiscal stimulus at least in the near term, US rates look more likely to move higher than lower. With US rates higher I would not think that dollar weakness will resume unless wage growth and CPI data in the US disappoints. USD strength would be more visible against other G7 currencies than Euro and specially visible against EM currencies. Today US personal income and outlays at 6PM can move markets along with a EU inflation and UK GDP.
USDINR moved higher on the growth concerns and fiscal slippage wherein there has been no fresh news. Other EM currencies depreciated along with USD strength and higher US yields. Yesterday USD strength paused on account of post tax reforms announcement cool off. There is no new news on India front or the US to suggest that the USD strength against EM currencies has reversed and therefore I would take this move as a temporary retracement only.
USDINR 1m NDF is trading flat today indicating the cool off in buying pressure. CNH and KRW continue to trade at weaker levels although have retraced since yesterday morning. Asian equities today are in the green with India 10Y yields coming down to 6.62 from yesterday’s 6.67%. A close below 65.15 on weekly basis would make the target 64.80 while a close above 65.35 would again make me target 65.75 next week. CMP 65.43, Range 65.30-65.50.
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