President Trump’s latest comments (accusing EU and China of
currency manipulation) seem to be laying ground for a forced currency
revaluation for China and EU which is consistent with the theory, that the
ultimate outcome of the trade war between US and China (and EU ultimately)
would be an agreement to depreciate the USD against Yuan and Euro. After the
2013 EU fiscal crisis Euro was devalued by the ECB through interest rate cuts
and blatant comments on the currency taking the single currency from 1.4 to
1.05 levels. Now with Trump threatening EU and China with tariffs the EU would
not mind returning the favor to help the US president win the November 2020
reelections. The big unanswered question for this outlook is when would this
happen, for which I would think that the ultimate resolution is still a few
months to a year away. But the markets will start seeing through the
eventuality sooner than later. Weakening US economic print and softer FED
stance will also help the soft dollar outlook.
USDINR continues to trade in its new range of 68.80-69.20
with clearly selling pressure on the lower side outweighing bids. Nationalized
banks continue to buy USDINR aggressively near 68.80 levels and for them to
allow further appreciation we would need a fall in USD or oil prices. Medium
term view continues to remain of 69.20 and 68.30. For the day CMP 68.86, Range
68.80-69.10.
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