The oil deal of increasing production by 1m bpd was priced in and consequently we saw oil and other assets moving against expectations post the announcement. Trump has targeted the EU with new trade sanctions which shows that the US President is going to the take the trade war to its conclusion with most of its major trading partners. . This would mean that equity markets would continue to remain sideways while the dollar could remain well bid except against JPY and other safe haven currencies. This week major new could be the political developments in Europe related to Merkel’s efforts to maintain her coalition or the EU summit on Thursday and Friday where we could hear about Brexit and the political developments in France. These could continue to weight on EURO which has found it difficult to edge higher than 1.1650 levels.
Offshore buying pressure in USDINR is muted as per 1m NDF. Other EM currencies have depreciated since Friday night (except TRY which gained because of Erdogan coming back to power). CNH has depreciated sharply to 6.54 (0.5%) along with KRW. Oil trading above 74 with equities trading flat does not bode well for INR. While the international factors remain INR negative the quarter end seasonality and some expected inflows could support the local currency. I would expect USDINR to trade in the range of 67.80-68.50 in the medium term. This week my bias would be for INR depreciation. CMP 68.10, Range 68.00-68.25.
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