The FOMC minutes showed worries over trade sanctions and inverting yield curve. The trade tariffs kicked in earlier today while Trump tweeted that US can finally put duty on Chinese goods worth $500bn. I would think if trade war tensions escalate then the FED will be forced to retreat and markets would take off medium term rate hikes out of the pricing which can result in dollar heading lower again. The narrowing 10-2 spread (now at 29bps) and the failure of dollar index to reclaim 95.50 levels (in spite of splendid US data), makes me think that the dollar index might have made a high for September quarter. A weekly close in dollar index below 94 would confirm a downward view in the dollar index.
If the view on dollar index is on the verge of changing then the view on INR has to follow. In spite of CNH depreciation INR has been well protected at 69 levels. The last 15 days was a period when NDF 1 month was trading 10 p right as compared to onshore and in spite of that we did not see runaway depreciation in INR (yes I would have expected more). Also once the trade sanctions have kicked in today CNH could stabilize taking volatility in USD Asia lower. A daily close above 69.10 would open the door for 69.73 while a daily close below 68.25 could indicate a sharp move down towards 67 figure levels. CMP 68.86, Range 68.70-69.05.
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