The weekly close in EURUSD was encouraging given the bounce from 200 WMA at 1.1360. On the other hand Italy 10Y yield at 3.14% (up 65bps in 1 month) indicates that for Euro zone the visible future would contain higher political risks. The next event in Italy is on the 27th September when Italy will give details of its next year’s fiscal deficit target. On the other hand Trump seems to benefit from continued noise around his foreign policy which therefore should result in continued headline risks on the trade tensions front. This could be his focus till the midterm elections in November at least. We have seen till now that trade tensions headlines results in a stronger dollar although equities don’t get affected as much. US data continues to show positive surprises although to a lesser degree while the EU data still shows more negative surprises. This data divergence along with uncertain political outlook does not give much confidence in EURUSD as a pair for the next month or so.
USDINR 1m NDF is trading 9p right which should prevent any sharp selloff in the pair. EM currencies have cooled off on the back of chatter of US-China talks and no incremental news from Turkey. Headlines should continue to dominate market sentiments and the immediate bias lies towards more negative headlines on Turkey and trade tensions. I would also expect some amount of panic in INR due to the recent depreciation. For the week I would expect USDINR to trade in the range of 69.41-70.40. For the day, CMP 69.83, Range 69.70-70.13.
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