The IMF says that the US dollar is overvalued by 12% while
Euro and Yuan are fairly valued. This should give fodder to Trump’s demands of
a stronger Euro and Yuan against the dollar. US data has been better than
expected in July but not significant enough (Bloomberg data surprise index is
still at -0.3) to rule out a 3rd rate cut in 2019 itself. The yield
curve shows a 90% chance of ECB also cutting its rate in September 2019 by
another 10bps to -0.5%. The FED in addition to two cuts by September 2019 is
expected to tweak its asset purchase program also in order to support a slowing
economy. Therefore basis economic data and central bank stance only the USD is
unlikely to get support, unless the US data surprise index moves into positive
territory that is diametrically against expected lines.
USDINR was bought aggressively by nationalized banks
yesterday while rumors of a bond outflow was also doing the rounds. A daily
close above 68.85 can drive the pair higher. USDCNH is back below 6.88 while
Brent has also retraced below 65 again. Medium term view of 67 by
September remains on the back of a softer dollar and large inflow pipeline. A
daily close above 68.95 should call for stops on this view. CMP 68.80, Range
68.90-68.68.
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