As we approach 6th July the trade sanctions related concerns in the market would increase. The most likely scenario is a last minute deal with Trump announcing victory although he would be retreating, having said that there is no news of any current negotiations between US and China. On the other hand German political tensions between Merkel and her interior minister on the issue of migration would keep Euro on the back foot for the time being. Meanwhile the 10-2y yield spread in the US continues to narrow indicating a possible inversion in the medium term. So the base case for the week is of weakness in risk assets with dollar strength across except JPY.
USDINR 1m NDF is trading at 30p while CNH continues to depreciate (6.648). Other EM currencies have mildly depreciated since Friday. Equities in Asia seem to be pricing in a moderate to major concern over trade sanctions. At 9 AM we saw aggressive offers but since then USDINR has been bought by nationalized banks. Looking at CNH and trade sanctions deadline on 6th July, USDINR should continue to depreciate during the week towards 69 again. CMP 68.45, Range 68.40-68.60.
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