A bit of political background on USA and Saudi Arabia. Historically US has been responsible for supporting the Saudi family and creating a state under them which makes the two regimes close allies. The alliance became even deeper once Iran distanced itself from the US in the 1970s and since then, US has benefitted from the Saudi ambition of becoming the only super power in the middle east. More recently the Obama administration tried to take a more neutral approach to its middle east policy by striking a deal with Iran and slowly distancing itself from the Saudi family. The result was that when Obama visited the Saudi family’s country last time as President, the Saudi king did not even come to the Airport which is generally a protocol. But it seems that President Trump has gone back to square one with clear allegiance to the Saudi family. He has revoked the Iran deal, allowed Saudi Arabia to again determine international oil prices (and this time with Russia) and consequently this has resulted in warmer relations between the two powers. With the history and the current administration’s preference for the Saudi family it is highly unlikely that the Saudi journalists murder in Turkey will snowball into anything that can affect economic stability in the middle east.
Dollar index continues to hover around its 200 week moving average and to reiterate, I believe that a convincing break higher before the midterm elections is unlikely. Similarly I would expect EURUSD to trade in the broad range of 1.1450 and 1.1750. The confidence in the Euro range increases given the fact that latest comments and rating downgrade indicate that the Italian fiscal deficit related uncertainty might be coming to an end now. USDINR 1m NDF is trading 7p right as compared to 4 p yesterday, this is on the back of mild depreciation in CNH and KRW along with other EM currencies. Equity markets lack upward momentum while selling pressure has abated for now. In the absence of convincing dollar strength and sub 80 oil price, policy makers might not be comfortable with USDINR trading near 74 levels, therefore the broad range of 73.75-73.25 should continue to hold with bulk of price action happening in that corridor. CMP 73.81, Range 73.86-73.60.
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