It’s an eventful week with US-NK talks, FOMC, ECB and BOJ. Although it’s very difficult for anyone to say what will come out from the US-NK summit but I would think that the fact that both are talking perhaps means that the terms are broadly agreed and the result could be pro risk. FOMC would raise rates while what needs to be seen is if the committee would end up indicating 4 rate hikes in 2018 (I would expect that it would, given the continued strong data print in the US). For the ECB meeting, it seems last week’s hawkish comments from Praet were not in sync with recent EU data or the uncertainty arising from a new anti-establishment government in Italy. Both these factors could ensure that the ECB doesn’t announce any reduction in its asset purchases and perhaps would fail to give any concrete guidance also as to when it would do the same. Therefore, I expect a dovish ECB for now and they would want to wait till July before taking the first step towards changing their stance. BOJ should also continue with its purchase programs and yield curve control without any noticeable change in its tone. The resultant impact could be incremental dollar strength against G7 currencies and positive equities. US CPI on Tuesday needs to be watched as well.
USDINR 1m NDF is trading 4-5p right while other EM currencies have appreciated since Friday morning. The upward momentum in USDINR has faded since the beginning of June. A close above 67.80 would indicate further up move towards 68.5 while a close below 66.85 could put further INR appreciation pressure. Till then we can expect the range of 66.85-67.80 to continue. CMP 67.36, Range 67.30-67.50.
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