INR update: Lack of trade war resolution visibility to keep risk sentiments subdued

Dow closing 1% lower yesterday plus deeper yield curve inversion indicates that risk sentiments remain subdued. US data continues to indicate that there is no significant slowdown fears in the US which would make the FED overtly dovish. Although the FED is on track to cut rates in September and might cut again in November but the overwhelming reason will be trade war uncertainty and not US economy. The risk aversion plus relatively stronger US economy therefore continue to put the greenback on a stronger ground. EURUSD (CMP 1.1085) can now only be sold in case of a daily close below 1.1050 as the medium term view remains of EURUSD heading lower towards 1.06.

Looking at India 10Y government bond yield at 6.56 and equities at -0.3% one can assume that the effect of the RBI transfer to government has been digested in asset prices now. Given the lack of visibility in US-China trade war and no immediate trigger which can bring a resolution, I would continue to expect deterioration in risk sentiments. USDINR should now trade in a range of 71.35 and 72.25 before it breaks higher. Market positioning for USDINR would be largely neutral now after the long unwinding seen yesterday. For the day the Range should be 71.35-71.70 and for medium term I would want to buy near 71.40 levels. CMP 71.62.