USDINR Daily Update - 14-Nov

Globally, US 10 year bond yield eased nearly 7 bps after mixed comments by Powell. US FED governor maintained that current monetary policy remained appropriate given moderate growth expectations, tightening labour markets and inflation expectations of below 2%. Future funds rates currently pricing less than 45% chance of rate cut in next one year. On other hand, safe haven currencies Yen and CHF traded with biddish bias amid lack of clarity on US-China trade deal.

On domestic front, India’s headline CPI inflation spiked to 16-month high of 4.62% lead by elevated food inflation, with vegetable inflation at 26% (MoM). More importantly, Core inflation remained under-check at 3.3%, hence should not hamper RBI’s December rate cut expectations.

USDINR pair opened the session on a flat note at 72.07 levels against previous close of 72.06. Range for the day for USDINR 71.90-72.40 levels.

USDINR Daily Update - 13-Nov

The USD/INR pair opened the session on stronger note near 71.77 levels against previous close of 71.45 levels. The weaker opening in rupee can be attributed to the spike in USD/CNH levels on Trump rhetoric and broad strength in US dollar index, which remained biddish above 98.00 handle. In UK Brexit party extended support to conservatives as it will not fight election on 317 seats, which were won by Conservative in 2017.

Going forward, USDINR pair will take further cues from Powell’s speech, later during the day, as market expects more clarity on monetary policy. On domestic front, high frequency data remain sluggish as Industrial production contracted by 4.3%. Range for the day for USDINR 71.45-71.90 levels.

Long Dollar on Fed Pause

After cutting interest rate for third straight meeting, US FED has tried to prepare market for a long pause. US Governor underlined strong jobs markets and its positive impacts on bottom of pyramid, who got better job opportunities due to accommodative policies. US unemployment rate remained close to multi-year low at 3.6% and wage growth remain low at 0.2%.

Economic activity has shown signs on weakness as retail sales decline in Sep and ISM manufacturing PMI remained below 50 for third consecutive month. This seems to be a secondary reason for FED rate cuts while Trump remains the prime driver. During speech, FED governor acknowledged this slow-down while expecting a moderate growth in near future. US inflation continued to remain below 2% levels and FED surveys shows that inflation expectations are settling well below its 2% target.

QE or Not QE –

As repo market witnessed sudden crunch of US dollar and overnight rates spiked close to 8% levels. US FED restarted its bond buying programme but limited to short term bonds. FED’s decision to buy T-bills, till q2 next year, should led to increase in FED balance-sheet size. This, FED believes is technical thing and should not have any implication on long term yields and monetary policy. Rather it is tool to smooth en the current monetary policy.

As US FED is already expecting a weak inflation and moderate growth in coming quarters and it believe current monetary policy stance is accommodative in these scenario. Thus this blog expects a decent pause from FED.

          US Dollar Index – Weekly Chart

Technically, US dollar index has taken support nearly weekly channel low of 97.10 levels. In coming-weeks US dollar index can test previous high of 98.80-99.20 levels with stop-loss of 97.00.

Cold Feet Modi and Boring Draghi!

Globally, Draghi delivered yet another dovish policy with no rate action but plenty of hope of future stimulus. The EUR/USD pair, which had been trading with a bearish bias, rebounded after policy as markets were ultra-bearish going into the policy. Technically, EUR/USD pair has strong support near 1.1110 levels and can bought for target of 1.1220 levels. More-over, US Fed commentary should take center-stage for coming week.   

On Domestic front, 10 Year bond yields, which made a low of 6.26% in current leg, rebounded sharply to 69.55% after bond markets got spooked as PMO raised concerns over raising foreign currency bonds. There is two way to look at this development – One Modi developed cold feet and postponed an opportunity open financial markets, other Modi 2.0 also listen to critics amends its policies.   

The USD/INR pair opened the session at 69.12 levels against previous close of 69.04. The USD/INR pair has been gaining ground gradually amid relentless buying by Oil and RBI testing patience of INR bulls. Going forward, USD/INR pair should take further cues from headwinds in domestic equity markets and broad trend of US dollar index.

Will England Qualify?

As world cup has entered in last leg of round-robin stage – let’s reconsider our prediction regarding 

semi-finalist.

Model Ranking			Official Ranking
Ind	1		NZ	1
NZ	1		Aus	2
Aus	3		Ind	3
Pak	4		Eng	4
BL	4		SL	5
Eng	6		Bang	6
WI	7		Pak	7
SL	8		WI	8
SA	9		SA	9
Afs	10		Afs	10

As expected, official ranking, which was initially prone to scheduling effects, now represent more-closer picture to reality. Official ranking currently shows NZ, Aus, India and England are front runner for semi-finals. More-over, it shows that Srilanka, Bangladesh, Pakistan and West-Indies are still in race while, South Africa and Afghanistan has been knocked out.

Semi-Finalist As per Model:

Will Qualify - India, Australia and New Zealand

Still in Race:  England, Pakistan and Bangladesh in that order

Knocked Out: South Africa, Afghanistan, Sri-lanka and West-Indies.

Going by numerous iterations – it can be confirmed that Sri-Lanka, which is currently placed at rank 5 will not qualify for semi-final. More-over, West-Indies will also not qualify.

Will England Qualify –

Currently, Model has ranked England 6^th Position – on expectation that they might lose all their remaining matches – India/NZ and Australia.   

1.       If England win at-least two of these three game, they will definitely qualify!

2.       If England lose all three game, they can’t qualify.

3.       If England win at-least won a single game than they should qualify Pakistan lose at-least one match either against NZ or Bang.

Though, Current ranks suggest Bangladesh and Pakistan above England, but remaining fixtures tilled the qualifying probability in favor of England!  

Does Sri-Lanka's 3rd Rank Justify?

As ICC world cup has concluded nearly 25% of group stage matches, it’s about time when we try to predict the world cup semi-finalist.

Model Ranking			Official Ranking
Ind	1		NZ	1
Aus	2		Aus	2
NZ	2		SL	3
Eng	4		Pak	4
WI	4		WI	5
BL	6		Eng	6
Pak	7		Ind	7
SA	8		Bang	8
SL	9		SA	9
Afs	10		Afs	10

Let’s discuss the official ranking first- The official ranking is based on results till date and does not predict any future match outcome. It is also plagued by asymmetric world cup scheduling like India has just played a single match on the other hand Sri-lanka, has played three matches. Owing to this, official table tends to paint the flawed picture of team ranking and thus their probability of qualifying for semi-finals. Like, Srilanka ranked third after a wash-out against Pakistan and win against Afghanistan. Official ranking does not reward victory against strong team and make it par as victory against weak team.Of-course in due course of time the official ranking will start correcting it-self. Mean-while, this blog has developed a simple momentum based model, which will try to predict the better picture of team ranking.

Semi-finalist:

As per the model prediction-

Most likely to qualify: India, Australia, New Zealand, England and West-Indies in that order.

Might qualify: Pakistan, Bangladesh and South Africa in that order.

Very less likely to qualify: Sri-lanka and Afghanistan

Though, Pakistan and Bangladesh has both produced an upset. But they are still far from among most-likely list. They have to consistently beat better teams, which looks rather difficult but best of luck to them.

Disparity in Official ranking and Model Ranking:

A simple observation will suggest that there is significant disparity between the official ranking and model ranking. To quantify this dis-parity we have calculated absolute deviation between ranks of a team by official and model ranking. For example – Official ranking of Sri-lanka is 3 but model rank is 9, thus there is 6 ranks disparity. At the end of group stage we will publish final ranking disparity with ranking at various stages of tournament. Currently, total absolute disparity between two rankings is 22.

Can we predict World Cup – Semi-finalist?

"Prediction is very difficult, especially if it's about the future." --Nils Bohr, Nobel laureate in Physics

ICC has overhauled the 2019 world cup format. Unlike previous world-cups, where teams were distributed in different groups, this world cup will witness a round robin format. As each team plays all other 9 teams, there would be far more first stage matches. This change will be beneficial for consistent teams (Like India & Australia) and night-mare for inconsistent teams (like Bangladesh, Pakistan). To put in simple words, In-previous world cup format, even a single upset ODI could mean end of road for good teams and a miracle for inconsistent teams. (Remember India crashing out in 2007)*

Problem Statement: Can we predict World Cup Semi-Finalist?

This blog will try to predict the Top-4 Semi-Finalist, at various stages (After first 10 matches than interval of 5 matches) of world cup. It will also use rejection approach - where-in the blog will suggest team, which are very less likely to quality.  The basic premise is the current world cup format should reward only consistent teams, more-over one or two up-set will not be enough to qualify. For example- Bangladesh has able to beat South Africa in their first game. By any definition it was an upset, but this does not necessarily means Bangladesh will definitely qualify for semi-final. Being relatively weak team Bangladesh need to consistently beat higher rank team to have any chance of reaching semi-final. Else, it may spoil party for other but its own prospect will remain in limbo!

Smart Rank Table:

This blog will also publish the smart rank table at various stages of world cup. The smart rank table will include result till date and plausible result of remaining matches thus predicting the final picture of points table. This projection will be done on premise of momentum of team performances.