The yoyo of trade tension related headlines kept swinging
and currently it is slightly less worrying that Tuesday. On top of this US CPI
mildly disappointed with positive comments from Draghi on EU inflation. Turkey
central bank surprised by hiking rates by 625bps against expectations of 300
bps. All this resulted in USD index falling sharply from 95.60 (200WMA) to
94.50 currently. I would continue to hold the view that US economy
outperformance and Trump’s pre election trade war campaign will keep USD well
bid till some time before November 6th. A weekly closing in EURUSD
below 1.1650 would reassert the above view.
On Tuesday I expected the gov/RBI to announce some policy
measure between then and Friday and coincidentally it was confirmed that over
the weekend PM Modi will review the economic situation and come out with
measures on USDINR. One of the measures could be reinstating buyers credit
through LOUs which was the trigger for the change in sentiment for USDINR 6
months back. The impact for this has been significant in terms of short term
trade credit unwinding plus reduction of trade credit cycle in number of months,
resulting in increased demand for USDINR in the last 6 months. Rate hikes could
also be announced given that it is a low hanging fruit. Somehow I believe that
the government will not use its ultimate measure of raising FCNRB deposits as
yet. Oil window could be another scheme that could result in reduced buying
pressure.
USDINR 1m NDF is trading 6p right as compared to 16p on
Tuesday morning. Today morning we saw some bids which would be overnight shorts
cutting positions plus some importer buying. Over the approaching weekend there
is an unpredictable event and therefore participants will lighten position
during the day today. Most of strategic positions would be USDINR longs which
therefore should result in the pair going towards 71.50 today. USDINR can for
sometime consolidate in the range of 71.50-72.50. CMP 71.81, Range 71.92-71.45.
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