INR update: Fears of a pandemic loom even as markets hope for the best

The novel corona virus situation can be compared to turbulence in an aircraft which makes one fear an immediate crash but statistically crashes are rare while turbulence is frequent. Markets seem to have realized the same and assumed that the virus will cause no harm which can be termed significant from a global perspective. Looking at the history of the past 100 years of pandemics across the world it seems a valid assumption as none of the episodes have been able to affect growth substantially at a global level. This said, the turbulence has become much more pronounced (with virus spreading and death toll rising) and it would be difficult to not fear a crash till the time it completely stops.

The corona virus is the only dominant theme currently driving markets. The markets seem to surprisingly calm about the budget and expects no surprises there. The inflow pipeline post budget continues to be strong which should limit the upside in case of fresh risk off sentiments. Due to the corona virus news flow short USDINR positions could stop out easily and therefore not recommended. CMP 71.20, Range 71.10-71.50 for the day.

INR update: Yuan gains and inflows continue to support INR ahead of Budget

INR update: Yuan gains and inflows continue to support INR ahead of Budget

The lower than expected US Industrial production was more than partly mitigated by the strong housing starts print on Friday. This week EU and US flash PMIs will give sense about economic activity in the developed world while ECB on Thursday will be keenly watched for the course the central bank takes under Lagarde’s new leadership.

CNH continues to gain (CMP 6.852) post the deal signing and better than expected China macro data release last week. Technically a break of 6.8450 on a weekly basis can suggest another 2% appreciation in Yuan and therefore it is a critical level to watch. USDINR has gradually moved higher from 70.95 levels to 71.08 on the back of short unwinding. Inflows continue to dot the way forward with uncertain timelines. While there doesn’t seem to be any reason for USDINR to move higher another 15p move up could be on account of short unwinding and regular outwards. Broad range for the pair is 71.25-70.80 while for the day 71.15-70.95 could hold, CMP 71.08

INR update: China’s currency manipulator tag removed

US removed China from the list of currency manipulator list and said that China has committed to not enforce competitive devaluation of the Yuan. This would mean that for at least the next fortnight Yuan should maintain its stead appreciation trajectory with a target of 6.82 (CMP 6.87). This steady Yuan appreciation should result in limited RBI intervention in USDINR. CNHINR has moved higher from 9.87 in October beginning to 10.3 now which could reason enough for RBI to allow INR appreciation towards 70.35 in case inflows continue to get sold. Also, USDKRW had traded above 1154 for the last 9 months and now the pair has broken that support and is trading at 1153.
Markets seem to have ignored the breakout CPI print yesterday at 7.35% considering that core inflation was still at 3.7%. The interpretation being that food prices are driving the headline inflation and since core is still under control, the higher than 6% number is transitory in nature.
USDINR 1m NDF is trading flat. In the next 10 days there could be two large chunky inflows supporting some INR gains from here. While last 10 days of January could drive USDINR towards 71.50 as markets focus on budget on the 1^st of February. A break of 70.67 on USDINR can indicate 70.35 while a break of 70.95 would indicate the end of the downtrend in the pair. CMP 70.85, Range 70.95-70.67.

INR update: Iran retaliates; markets maintain calm as Trump’s address is awaited

Iran fired missiles at American bases in Iraq today. The same was confirmed by US while Iran said that its revenge action is complete and it seeks no war. The US President is to address the nation on Thursday morning. In case the missile attacks would have led to loss of American lives then the retaliation from the US would be severe. Otherwise the market seems to be pricing in little possibility of further escalation in the tension between the two countries.

USDJPY initially moved lower from 108.50 to 107.65 levels but is now trading higher at 108.30 levels indicating that risk sentiments are not hit as much as one would have expected. Yuan continues to appreciate (CMP 6.9450), a weekly closing below 6.92 would indicate that 6.85 is on the cards.

Technically USDINR has broken 71.85 convincingly now (CMP 72.03), and the next major resistance is at 72.25 and 72.44 levels. Although a lot of chunky inflows are in the pipeline in the next 2 weeks, the geo political tension muddies the waters making it difficult to form a clear view. CMP 72.03, Range 71.85-72.25.

INR update: Moderate improvement in Risk sentiments

A deterrent remains effective only till the time it is not used; it is unlikely that Iran will take the US head on by blocking the strait of Hormuz (which is Iran’s nuclear weapon). Like North Korea, Iran’s soul objective is to protect its regime and the regime stays only till the time it gives US an excuse to invade. The most likely response from Iran would be increased proxy war against US troops in Iraq and across middle east. While this will keep markets worried but by the end of this week without any further escalation markets could have totally forgotten the new year incident.

Risk sentiments improved as Israel distanced itself from the killing of Sulaimani. USDCNH trades below 6.96 as KRW also registered modest gains. Equity markets in Asia is in the green. A daily close in USDINR below 71.68 would against open the door for 71.35 (favoured direction). A couple of chunky inflows over the next fortnight should also keep USDINR well offered. CMP 71.72, Range 71.80-71.60. 

INR update: Markets remain tensed as it awaits an Iranian response

Considering the fact that it seems certain that the Senate will keep Trump in office when the impeachment trial begins in the second week of January; it is difficult to link the impeachment trial to the US decision of escalating tensions with Iran. But what is unnerving is a President facing impeachment and having to decide on possible military actions in case Iran decides to retaliate. This week global markets would stay anxious while a few days without escalation would make markets look ahead.

US ISM (manufacturing PMI) had continuously slipped in 2019 and Friday’s reading below all estimates at 47.2 was the 5^th reading below 50 indicating a shrinking growth differential between the US and other DM economies. The US ISM prints also indicate that the next rate move from the FED would be a rate cut.

USDINR stays on the edge and reacted on the Iran geo political tension as oil prices have spiked to 70.44. The next resistance for USDINR is in the zone of 72.25-72.44. While escalation of geo political risks can happen instantly, de-escalation would only take effect gradually; Therefore, this week needs to pass before one sets a direction for USDINR. For the day CMP 72.01, Range 71.95-72.25.  

INR update: Geo political tensions flare up roiling market sentiments

Sentiments turned sour globally today morning as US and Iran came face to face in fresh geo political tensions in Iraq. It is in Iran's interest to ensure that the tension does not flare up. On the other hand the US is unlikely to back down if Iran or its forces show any aggression. Therefore like the North Korea geo political tensions in 2018 it is unlikely that these tensions flare up.

In a similar bout of geopolitical skirmish, recently on 14th September 2019 Saudi oil facilities in Abqaiq were attacked using drones by Iran backed rebel groups from Yemen. USDINR jumped from 71.13 to 71.98 and by the end of third day it was back at 71.17 levels. Oil took longer to normalize to pre attack levels given the concerns around restoration of supply which lasted till 30th Sep 2019.

Sustained trading in USDINR above 71.70 would technically indicate a target of 72.40. Therefore it would be prudent to wait until Monday before making a view on USDINR direction. CMP 71.65, Range 71.70-71.50.