As if protectionism rhetoric was not enough, Mnuchin said that a weaker dollar is good for the US and the dollar broke all crucial resistances. A good support on the dollar index now is 88.5 (CMP 88.96). With the ECB today, I think that 88.5 should hold for the time being as the ECB will not want to jump the gun and indicate tightening of policy sooner. That would be termed as dovish and EURUSD could see a medium term top at current highs. More interesting would be Trump’s speech tomorrow in Davos which can reverse what ECB does today while I would keep an ear out for Mueler’s questioning of Trump in the Russia investigation.
Chinese Yuan has gained more than 1% since yesterday’s extremes. If I go by my own EM currency index then USDINR should be at 62.25 basis the last 1 month movement in other currencies. I would expect another 20p movement in INR in January taking the pair to 63.25 levels. USDINR 1m NDF has moved significantly left to 6p today from 3p yesterday. Nationalized banks continue to buy USDINR against global market sentiments and larger inflows. CMP 63.47, Range 63.52-63.30.
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