INR update: Powell likely to be hawkish

Market is eagerly waiting for Powell’s keynote speech today at the Jackson Hole Symposium of central bankers. The market meanwhile has already effectively cut interest rates by 25 basis point for the 18^th September 2019 FOMC. The latest FED speakers tried their best to reduce the rate cut chances for September 2019 but failed. The FED would not want the market’s anxiety of trade war uncertainty to push it into a rate cut cycle earlier than what it anticipates. Therefore Powell would again talk up the economy and would want yields to increase post his speech. His main concern would be the 2 more rate cut chances at 100% and 80% for September and November respectively.

An uptick in yield should support the dollar and risk sentiments temporarily. The strange fact of the argument is that if risk sentiment deteriorates then also dollar gains as yields fall. On the other hand if yields increase due a less dovish FED, then also I would think USD would gain more so against the Euro and GBP. Therefore the only outcome for dollar losses would be a dovish Powell which looks unlikely given the low level of short term yields.

In the near term EURUSD weekly close below 1.1050 (CMP 1.1070) should result in EURUSD heading to 1.06 and lower. IN GBPUSD (CMP 1.2212) a weekly close below 1.1975 should take the pair 5 biggies lower. USDINR weekly close above 71.80 should bring in 72.50. Alternatively on Monday if USDCNH trades above 7.10 then USDINR could see 72.50 next week.