Currency Market 24-Jan : ECB launches a formal review of its monetary policy strategy

Globally, ECB has launched a formal review of its monetary policy strategy, which will be guided by two principles – thorough analysis and open minds. Lagarde explained – “it will have to do about how we deliver, how we measure, what tools we have, and how we communicate. It will really encompass the entire communication approach when it comes to decision-making, to publication, to the use of language that we have, to the outreach, to the engagement with all stakeholders.” Hence, at current stage this review does not side with either more dovish or more hawkish strategy, but markets will remain watchful of the updates of review till Dec-2020. Another point, one should not expect more aggressive quantitative easing before this review ends, hence in that sense there is upside risk in Euro. On policy front, ECB kept its monetary policy stance unchanged and expects that downside risks are less pronounced than last policy. Consequently, EUR/USD pair slipped slightly to 1.1050 levels and it will take further cues from German and French PMI numbers.

On domestic front, RBI concluded 4^th trance of ‘operation twist’, wherein RBI bought INR 10,000 Cr bonds and RBI sold just INR 2,950 Cr bonds. Although, RBI had received total bids of INR 35,375 cr from selling leg, but it was not comfortable with price. For instance, 7.94% GS 2021 cut off yield was 5.71% against prevailing rates of 5.85%. Thus RBI has bought INR 7,050 cr on a net basis. On currency front, USDINR is trading near 71.26-27 levels. The USDINR pair has support at 71.05-71.10 levels and resistance at 71.40-45 levels. Range for the day 71.15-71.40