Trump and Mnuchin did damage control and tried to speak on how they want a stronger dollar but the markets know what they really desire. Even then 88.5 will remain critical for dollar index along with 1.26 on EURUSD. US 10Y yields can continue going higher (as budget spending discussion happen in the US next month) and a weekly close above 2.7% should open the door for 3%. In terms of CFTC positioning market is long Euros while the dollar weakness story is just building up in GBP and AUD. In JPY the market is still overtly dollar long and after Koruda’s Davos statement about inflation finally reaching target (which was subsequently retreated by BOJ), I would think the potential for substantial JPY appreciation from here makes a better trade.
USDINR 1m NDF is trading 2p left while EM currencies have depreciated since Thursday. Equity and debt inflows seems substantial and consistent for now as equity markets trade at all time highs. Bond markets seem to be more assured of fiscal prudence in the upcoming budget on 1st Feb. In this environment 63.70 on USDINR looks much more unlikely than 63.30. I would continue to expect overnight appreciation on INR. CMP 63.52, Range 63.60-63.45.
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