The markets are assuming that all hurdles to risk will somehow and eventually be averted. Basis this assumption a couple of days of silence on trade sanctions has led the market back to a pro risk mode. The only constant is that dollar strength continues. ECB’s Nowotny reasserted that they want a weaker Euro giving the reason of rate divergence. While Villaroy (ECB governing council member) seemed to suggest that the first rate hike might come well after 2019 summers. In the short term I would expect EURUSD to head to 1.1451. Powell continued with the FED’s gradual rate hike comments suggesting that the neutral rate would be around 3%. This rate hike rhetoric can lead to a inverted yield curve, which can be a hurdle for a strengthening dollar from here. DXY is at 95.23 and the target could be 95.89/96.01. For dollar index to go higher than 96 there has to be further development on trade sanctions or rate divergence. GBP failed to rally in spite of May winning the vote in the parliament which indicates the strong dollar view from here in the short term.
USDINR 1m NDF is trading at 32p as against onshore’s 23p indicating offshore buying pressure on the pair. Yuan trades near 6.5 while KRW is facing resistance at 1110 levels. Other EM currencies have mildly appreciated over the last couple of days with improvement in risk but CNH and KRW have an overriding effect on USDINR for intraday movements. Price action suggests that nationalized banks sold aggressively at 68.20 levels. FII outflows from debt and equities continue. A break of 68.27 could bring in 68.40 otherwise it could be a quiet day with a narrow range. CMP 68.21, Range 68.10-68.25.
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