German GDP data showed the strong and consistent growth that Germany is registering (2.8% pa). This along with EU GDP growth at 2.5% pa took EURO higher towards 1.18 handle and led to dollar longs stopping out across the board. US yields failed to convincingly break 2.4% again even though the progress on the tax bill indicates higher chances of the bill becoming law sooner. USD index has entered a make or break territory and a break today below 93.7 could bring in further weakness (CMP 93.8). We have US retail sales and CPI today which would be critical.
India trade deficit increased to $14bn against market expectations of $10.5bn. This was mainly due to lower exports and higher oil imports. Given the rise in oil prices and quick reversion of the increase in Exports in September, the print should lead the markets to worry about current account deficit increasing towards $45bn for this financial year which should keep USDINR bid. This along with increasing bond yields (India 10Y at 7.03%) could ensure limited downside for USDINR.
USDINR 1W NDF continues to trade right while 1m is flat indicating actual outflows getting hedged. USDINR opened at 65.43 and got sold off to 65.30 on account of longs cutting their position on the back of dollar weakness. At 65.30 we are seeing bids from importers. Given that the down move has already happened I would expect USDINR to stay in a small range for the rest of the day. CMP 65.31, Range 65.26-65.43.
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