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.