The last thing preventing further dollar strength is perhaps the 200WMA on EURUSD at 1.1360. Looking at Italian yields at 3.10 (29bps higher in the last 1 week) and Turkish impact on European banks (although limited), it looks that it is a matter of time before EURUSD break lower than 1.1360 and provides momentum to dollar strength. On the other hand a quick resolution to the Turkish standoff might provide a relief rally but expect that to be short lived as markets will continue to focus on the vulnerabilities of various EM economies once it has got a taste of it.
India inflation cooled off but it doesn’t matter given the EM basket sell off where India seems to be in focus all of a sudden. USDINR 1m NDF is trading 7p right as compared to a higher 8p yesterday. The pressure on INR seems to be more offshore driven and therefore I would continue to expect INR to be under pressure during European and NY session. Other EM currencies are relatively stable today but it has not prevented USDINR from testing 70 levels. Anecdotal evidence suggest that RBI sold aggressively from 70.05 levels to 69.90. USDINR should continue to move with overall dollar index. For the medium term, volatility seems here to stay while the trend for USDINR is higher. CMP 69.87, Range 69.70-70.25.
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