Today we have the ECB wherein Draghi would like to push the cart of confidence and normalization ahead given Euro areas superior economic performance. Thus I would think that he would not be dovish although he would remain measured, plus as before he would not talk down the Euro. I would not expect significant downward revisions to inflation forecasts wherein growth forecasts should move higher. If Euro trades higher than 1.1850 an hour after the press conference then we might head higher than 1.20 by EOW tomorrow.
On the other hand the House of Representatives votes for the Senate approved tax bill today. If this vote goes through then the tax bill could become a law by a simple majority (i.e., Republican votes only) in the Senate. This vote would be followed by further procedure and the houses bill on 1stNovember. Today’s vote going through could significantly increase the chances of the tax cuts being passed and fiscal deficit being raised, thus leading to dollar strength against JPY and EMs (temporarily at least).
Then there is US GDP tomorrow which can usher in further dollar strength / weakness. And the swinging moods on the next FED chair. All these make a medium term view on USDINR impossible at the moment, so let’s wait for these to pass.
USDINR 1m NDF is trading 2p left as compared to 2p right yesterday morning. FPIs poured in Rs. 3600 crs yesterday in Indian equities giving a big thumbs up to the government’s bank recapitalization plan. It would be unreasonable to assume that all the money came in a single day and therefore I would expect more FPI inflow in equities in the coming weeks. EM currencies have appreciated since yesterday as dollar weakened. I would not sell USDINR here given the chain of events which can bring in dollar strength in spite of the local sentiments. For the day, 64.76, range 64.68-64.85.
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