INR update: Month end price action watched as US-China deal goes down to the wire

The market continues to remain uncertain on the trade deal as the fresh tariff deadline of 15^thDecember nears. Mostly USDCNY fix moves in one direction during a given week and this week it started from 7.0397 before making a low of 7.0271 yesterday and registering a bounce to 7.0298 today. This indicates that the US and China were moving closer to the deal before the HK bill became law on Wednesday. 

A monthly closing in dollar index above 98.9 (not the preferred view) would be significantly bullish in an otherwise range bound market. 

Nifty is at a crucial juncture and a weekly closing below 12,050 (CMP 12,111) would perhaps indicate 11,400 and the same would be accompanied with risk off sentiments across currencies (not the preferred view). 

USDINR 1m NDF is trading 0.5p left while EM currencies have mildly depreciated since yesterday. Asian equities are in the red today as China threatened retaliation to the HK bill. Yesterday USDINR was bought aggressively by custodian banks and commodity importers. A weekly closing for USDINR outside 71.30-71.75 is important for a fresh trend. For the day CMP 71.72, Range 71.80-71.50.   

INR update: HK bill become a law; US growth surprises

 
One would think that the President’s signature on the Hong Kong bill would not bode well for a US-China agreement on the Phase 1 of a trade deal before 15^th Dec 2019. But the fact that the USDCNY fix has come in lower at 7.0271 vs yesterday’s 7.0349 indicates that the development is unlikely to affect the trade deal, the same is also indicated by a reasonably stable USDCNH today. Equity markets continue to price the phase 1 to be signed by December 15^th. 

US growth continues to surprise with the Q3 GDP getting upwardly revised to 2.1%. This along with other indicators makes it certain that the FED is likely to stay on hold for the next 3 months at least. A monthly closing above 98.9 on the dollar index would be a breakout (and therefore unlikely) and significantly bullish. 

USDINR 1m NDF is trading flat as compared to yesterday 3p left which indicates reduced selling pressure. EM currencies have moderately depreciated since yesterday evening as risk appetite looks subdued as compared to yesterday. We have seen buying from Nationalized banks since morning. Inflows have been driving USDINR since the last 1 week, and today morning they seem to be missing. For the day, CMP 71.46, Range 71.60-71.30. A couple of hours of trading below 71.30 would indicate that 71 figure is on the cards. A closing above 71.55 would bring in the range of 71.-40-71.70 again. Preferred view is 71.30 and below.

INR update: Rare unscheduled Trump-Powell meet; Trade deal optimism fading

For the first time in 37 years a US President called the FED Chairman for an unscheduled meet. Every effort was made to keep the meeting confidential. Post the meeting the President said that the meeting was to discuss negative interest rates, trade war, economy, inflation and dollar strength. The President would have realized by now that Powell cannot help him in lowering interest rates if the economy doesn’t warrant more cuts. The only thing that the elected President and independent Fed chair can work together on is on the currency. Logically it seems that there is a high chance that the meeting was about dollar strength and the options USA has if it wants to weaken the dollar. This also suggests that there could be some negative news on US-China trade deal which is making the President explore alternative options. But although logical the above is still a conjecture, I would look to sell USDJPY at 108.80-109.20 region with stop above 109.40 to participate in the eventuality of a risk off because of negative news on the US-China trade war. Or in case there is some action on Trump’s concern that the dollar is too strong for USA’s competitiveness then also USDJPY could move lower. 

On the other hand in spite of the US administration talking up trade deal hopes nothing has materialized. Reports suggested that China is pessimistic about possibilities of a trade deal being reached in a hurry. Meanwhile the university siege in HK might suggest that at this juncture China might not want to concede victory to the US on the trade deal. USDCNH is now well above 7 levels at 7.026 indicating increased concerns on the trade deal. 

USDINR 1m NDF is trading 1.5p right as compared to 0.5 left yesterday morning indicating moderate buying pressure on the pair.  EM currencies have moderately depreciated since yesterday afternoon. Risk sentiments are muted today morning while participants are largely neutral on their short term positioning indicating scope of long positions being built. Nationalized banks continued to buy aggressively as it seems that the authorities locally do not want INR to appreciate much in the wake of a weakening economy. CMP 71.96, Range 71.82-72.20. 

INR update: Trade deal optimism; China struggles with economy and unrest

It is a lighter week for fresh data prints but the FOMC minutes will be closely watched as every incoming piece of information would now be dissected  to ascertain if the FED is going to hold or cut in the December FOMC. USDCNH has been firmly held above 7 levels for a week now which indicates that the next bout of yuan appreciation would need incremental positive information on the trade war front. Although phase 1 deal sentiments have improved substantially in the last one week, the trade war in its entirety will mostly likely extend to the November 2020 US presidential elections. With HK unrest increasing and China cutting rates on the back of weaker growth prints, the other factors for CNH (except trade war related sentiments) indicate to depreciation pressure. 

Last two days saw long positions being cut in USDINR as risk sentiments improved. USDINR 1m NDF is 0.5p left which is mostly the same as Friday indicating no additional pressure. Emerging market currencies are largely flat since Friday in spite of mild dollar weakness against G7. The positivity about possible inflows into India is digested in price. A daily close below 71.56 (unlikely though) might indicate 71.35 this week otherwise we should again head towards 72.10 levels during the next week. For the day, CMP 71.65, Range 71.55-71.85.