Finally Dollar Index Breaks :)

 “While looking back, things look quite straightforward and logical especially in markets” – Anonyms

Globally, EUR/USD surged past 1.20 handle as it broke multiple resistances, including falling monthly trend-line from 2011. Over the past one month, the EUR/USD pair has been gaining momentum as pair gained more than 450 pips from its post-US election low of 1.1602. Just to be clear, the surge in Euro has a very little contribution from the European economy, which continue to struggle amid Covid crisis. Euro Area’s service PMI remained below 50 at 41.3 levels, while manufacturing PMI improved to 53.6. November German Ifo business climate released at 90.7 levels, lower than October and pre-covid levels.

The surge in Euro can be explained better from improved risk appetite of global investors. CBOE volatility index VIX, has an inverse relationship with risk appetite, crashed to 20.77% lowest since 24^th Feb (Start of Covid sell-off). In last one month, US S&P index has gained more than 10% from 3300 to 3663 levels indicating significant rally in stock prices, which can be attributed unrealized tail risk from US election and optimism from Vaccine results. The gain in euro, obviously means, much-awaited breakdown in US dollar index. US dollar index broke down key support levels 91.70-91.90 zone. The structural decline in US dollar index can also be attributed to overtly dovish Fed and lack of inflation risk in the economy.

Technically, the break of 1.20 handle seems quite significant on EUR/USD chart and there is a possibility of another leg of movement till 1.23-1.24 levels. As US dollar index has next significant support near 88.50-89.00 levels, there is space of nearly 3% decline in US dollar index. It is noteworthy that ECB has been a bit uncomfortable from the surge in Euro in the past.  ECB policy, next week, can be a key trigger for the pair.

On domestic front, there have been multiple positive factors underplay like improving current account, robust FIIs and FDIs flows and weak US dollar. Despite all this, Rupee appreciation has been relatively mild as RBI has been building FX reserve at an electric pace. Technically, USDINR pair has multiple support b/w 73.15 to 73.50 levels. As always, appreciation rupee will remain at mercy of mint street.

Currency Market Updates 26 Oct

 Globally, equity markets remained poised as US politicians continue to reduce their difference over the fiscal package. Dow Jones closed slightly in red 0.1% lower. Markets are likely to shift focus from fiscal package to US election outcome given we are just a week away from polling day. The price action in EUR/USD pair remained bullish as pair rebound to 1.1840 levels after testing a low 1.1785 on Friday. The gains in EUR/USD were further supported by the release of improved manufacturing PMI data from Germany and Euro area 58 & 54.4 respectively. Technically, EUR/USD pair has support near 1.18-1.1820 on a closing basis and resistance near 1.1860-1.1880 levels.

On domestic front, Nifty is trading flat near 11900 levels and 10-year bond yield is trading at 5.84%. Last week, despite broader dollar weakness USDINR pair gained amid continued buying by RBI, which led FX reserves surge to $555 bn mark. Technically, USDINR pair has witnessed triangle pattern break-out at 73.50 levels on 4-hour time frame. USDINR pair is likely to trade with bullish bias with support near 73.50-55 level and resistance near 73.90 levels if broken can test 74.10 levels.

Currency Market Updates: 21 Oct

Globally, Risk sentiment remained elevated as US politician continued to deliberate over the stimulus package. Dow Jones closed in green nearly 0.4% above the previous close. Given, we are just two weeks away from the Nov-3(US election date) any package would be more about the political picture than economic outlook. Moreover, markets are quite optimistic about the package any deviation from the expected lines could lead to sudden risk-off moves.

The EUR/USD pair has surged nearly 150 pips from lows of 1.701 levels. The sharp gains in Euro can be attributed to decent Chinese economic data and optimism over US economic package. Given the lack of economic data from EU, Euro is likely to be driven from the outcome of US economic package. Technically, the EUR/USD pair is trading near upper Bollinger band at 1.1845 levels. EUR/USD pair has significant resistance near 1.1855-60 levels, a break of which might lead the pair to 1.19 levels. EUR/USD pair has support near 1.1780 levels.

On the domestic front, Nifty is likely to retest key resistance at 12025 levels as it tracks global peers. On the currency front, Yesterday, USDINR pair had spiked to 73.535 amid strong buying interest from national banks. Strong buying interest from national banks has kept rupee appreciation under check despite a significant rally in Chinese yuan and weakness in US dollar index. Technically, USDINR pair has key support near 73.25 levels and strong resistance near 73.60 levels

Currency Market Updates 11-Sep

Globally, much-anticipated ECB monetary policy turned out to be a low key event as ECB decides to keep monetary policy framework broadly unchanged. ECB President, Lagarde maintained the ultra-easy policy along with bond-buying programmes are showing intended results in the Euro area. More importantly, for currency traders, Lagarde felt that “Clearly to the extent that the appreciation of the euro exercises negative pressure on prices, we have to monitor carefully such a matter”. To be fair, the tone of comments were quite soft, thus signalling that ECB is broadly comfortable with the recent rally in EUR/USD pair. Post ECB meeting, EUR/USD pair spiked to 1.19 handle but could not sustains its gains due to rising concerns of hard Brexit and sell-off in US equity markets. Dow Jones resumed its downward journey as it tumbled nearly 1.5%. Technically, the EUR/USD pair has multiple resistances (falling trendline on the monthly chart from 2008) at 1.1990-1.2030 zone.  Any meaningful rally is only plausible after a monthly close above 1.12040 levels.

 

On the domestic front, Yesterday, Equity markets rebounded nearly 1.5% after the rumour of Amazon investing nearly $20 bn in Reliance retail, leading to nearly 7% rally in reliance industries. The same news leads to sharp volatility in currency markets, as USDINR momentarily fell to 73.15 before retracing back to 73.43 levels. It is noteworthy that Reliance has declined to either confirm or deny any such developments. Technically, USDINR pair has failed to close above 73.62-65 levels, which is 38.2% retracement of the move from 75.05 to 72.75. Thus 73.62-65 levels remains a key resistance for the pair and near term support 73.22-25 levels

Currency Market Updates: 10 Sep

Globally, EUR/USD rebounded above 1.18 handle after leak reports of improved sentiments in ECB’s economic survey. EUR/USD pair will take further cues from ECB monetary policy meeting, scheduled later during the day. It is noteworthy that ECB is likely to announce changes in monetary policy settings, though they might way different than FED’s average inflation targeting. Last month, FED has announced average inflation targeting, which should allow FED to keep interest rates lower for a longer period. On the equity front, Selling pressure in US equity markets paused as Dow recovered nearly 1.5% after losing more than 5% in the last three trading sessions.

On the domestic front, 10-year bond yields are likely to hover around 6% handle amid a drop in crude prices and concerns of higher borrowing in the near term. Equities are likely to rebound tracking its global peers. On the currency front, USDINR pair is likely to open lower near 73.45 levels amid weakness in the US dollar. US dollar has retreat against emerging currencies lending support to likely rupee gains. Technically, USDINR pair has failed to close above 73.62-65 levels, which is 38.2% retracement of the move from 75.05 to 72.75. Thus 73.62-65 levels remains a key resistance for the pair and near term support 73.22-25 levels. For intraday prefer to sell near 73.45 with stop 73.55 for a target of 73.28

Currency Market Updates: 2-Sep

Globally, ECB’s member Lane commented that EUR/USD levels do impact monetary policy of Euro-zone. This lead to sharp retracement in Euro to 1.19 handle from key resistance (on monthly chart) of 1.2011 levels. US’s ISM manufacturing PMI released at 56 levels against previous reading of 54.6.

On domestic front, 10 year bond yield is trading close to key support near 5.92-95% levels. RBI has clarified that additional HTM category bonds are only for fresh G-sec issuance i.e. RBI is keen to manage government borrowing plan without disrupting the market. USDINR could held to its overnight gains and now trading below 73 handle. USDINR remains a sell on uptick candidate with resistance at 73.25 levels and support at 72.75 levels.

Currency Market Updates: 28 Aug

 

Globally, US FED president, Powell announced that FED will target average inflation of 2%, which necessarily means that FED will allow inflation to overshoot 2% to make-up for lower inflation in earlier period. Thus, interest rate hikes and its quantum would be later and lower.  Ironically, market reaction to FED’s policy change was a bit counter intuitive as US 10 year bond yield surged more than 10 bps to 0.77%. On other hand, Dollar index and US equity were largely flat after the speech.

On domestic front, G-sec bonds are likely trade with bearish bias amid spike in US yields. Interestingly, RBI’s operation twist of INR 20,000 cr remained insignificant in stemming the fall in bond prices. India’s 10 year bond yield is trading near 6.19% can spike toward 6.30% in short term. Yesterday, USDINR pair continued its downward journey as RBI was yet again missing from action. USDINR pair has tumbled to 73.60 levels in early trades. On weekly charts, USDINR pair has significant support near 73.50-55 levels, if broken on weekly basis there is little supports till 72.00