The inflation concern expressed by FOMC was taken as dovish while the clearer indication of balance sheet reduction in September was ignored by the markets. US10 Y yields are still at 2.28% as compared to 2.24% 2days back and therefore the movement in EUR is not backed by yields. EUR buy is a strong theme currently and the market is looking for reasons to follow that while it is ignoring the opposing arguments. EURUSD faces 200 week moving average at 1.18 now and a weekly close or rejection of the level would be critical. Weak US data, durable goods today and US GDP tomorrow can provide momentum to the ongoing trends.
FIIs are not putting money in equities while they seem to be utilizing any debt investment limits that are available to them. Debt investment limits have reached the brink and if the RBI were considering increasing the same in the next week’s RBI monetary policy then it would first allow INR to appreciate as that would be a natural consequence post such an announcement. Nationalized bank’s aggressive buying over the last fortnight suggests that RBI is not considering raising debt investment limits at least in the next policy meeting. This would put on hold the inflows that has been driving INR appreciation for the short term.
USDINR 1m NDF is trading 5.5p left which is similar to the last 1 week levels. I would think BJP victory in 2019 was priced in so Bihar political development can be ignored for the short term. INR is fairly valued at 64.10 along with other EM currency movement as far as the last 2 days movement is concerned. If RBI did not allow appreciation previously then I would not expect a dovish FOMC to change that stance. 64.10 should be protected on the downside today as oilers buy along with nationalized banks. I would expect USDINR to touch 63.75 next week but that would happen gradually with gap down moves. CMP 64.11, Range 64.05-64.19.
