INR update: January a crucial month for Yuan, dollar index nears crucial levels

Since 2016, every January CNY fix has moved by an average of 1.86%. This can be contrasted against average absolute monthly movement of 0.9% in the same period. Last 3 years since 2017 every January CNY has appreciated by 1% to 3%. This could indicate that China implements its desired currency direction from January every year. Looking at the CNY fix at the close of 2019 it seems the desire this time is to make Yuan stronger in the backdrop of a Phase 1 deal signing and ahead of a Phase 2 confrontation. Although CNY fix has given a break of 6.98 I would wait for another week till 8th of Jan so that higher market volumes affirm the lower breakout in USDCNY. Technically the target for USDCNY would then be 6.92 and lower, (CMP 6.9762).

USD index needs to break 96 to confirm dollar weakness as a trend for 2020. CMP 96.7, a break of 96 would need significant development and momentum which seems to be missing now. Perhaps a breakdown in USDCNY would be a catalyst for a broad based dollar weakness in January 2020.

A confirmed breakdown in USDCNY or dollar index should be INR positive in spite of sustained buying by nationalized bank. In this back drop the expected range till first half of January 2020 should be 71.45-70.80. For the day, CMP 71.26, Range 71.35-71.15. Expecting some INR gains in the second half  today given the quarter end.