Currency Market 27-Dec: Yield tumbles on second round of Operation Twist

USDJPY pair retraced from its near 7 month high levels of 109.68 to 109.44 after release of Tokyo core CPI numbers. Tokyo core CPI released at 0.8% against previous close of 0.6%. It is noteworthy that BoJ’s governor Kuroda has reiterated that “BoJ is ready to ease if 2% inflation target comes under threat”. On commodity front, Crude oil prices continued its upward journey as Brent oil surged to a fresh 3 month high levels of 68.00. Crude oil prices will take further cues from inventory data, due to release later in the day.

On domestic front, India’s 10 year bond yields tumbled nearly 6 bps to 6.51% as RBI announced next round of operation twist. Just like in last OT, RBI will buy long term 6.45% GS 2029 of INR 10,000 Cr and sell various short term bonds. On currency front, RBI fixing quoting in discount at -1.25/-0.5 and Dec future is trading +1 paisa with respect to spot. This indicates relative selling pressure in OTC market in comparison to future market.  USDINR pair opened the session on a flat note at 71.31. USDINR pair has first resistance at 71.30-35 levels and second resistance at 71.48-52 levels. USDINR pair has first support at 71.09-71.12 levels and second support at 70.97-71.02 levels. Range for day seen as 71.07-71.35.

Currency Market 26-Dec: Unwind of RBI's Currency Future Intervention

Crude oil prices surged to fresh 3 month high levels of 67.40 amid easing trade war worries. It is noteworthy that OPEC and Saudi Arabia have agreed to cut daily oil production by total 2.1 billion bpd to revive oil prices. Currently, rupee market is not reacting much to a near 10%, in last four weeks, surge in oil prices. Technically, Brent crude has multiple resistance b/w 68-70 region. One should remain watchful of these levels as a close above 70 level might lead to weakness in rupee. Major currencies will remain closed for Christmas celebration.  

On domestic front, RBI has been actively intervening in future markets instead of OTC owing to huge liquidity surplus and spike in forward premium. When RBI buys in future markets, banks momentarily get an arbitrage opportunity by selling in future in buying in OTC. On expiry date (27-Dec) the future position will get net settled and Banks will need to unwind their OTC position. This should create a significant supply of USD for fix related selling. Thus, it might yield in some appreciation of rupee in short term. USDINR pair opened the session at flat note at 71.27 against previous close of 71.28. USDINR pair has first resistance at 71.30-35 levels and second resistance at 71.48-52 levels. USDINR pair has first support at 71.09-71.12 levels and second support at 70.97-71.02 levels. Range for day seen as 71.07-71.35

Currency Market Update - 24-Dec : 10 year yield correct 19 bps on Operation Twist

The free fall in cable continued amid fears of hard Brexit. GBP/USD tumbled to near three week low of 1.2904 as lack of volumes accentuated the pain. On the other hand, US dollar index remained broadly unchanged despite weak durable goods orders. Durable goods order declined by 2% on M-o-M basis. Going forward, major currencies is expected to witness a calm session ahead of Christmas.

On domestic front, RBI concluded Operation Twist by buying INR 10,000 Cr 6.45% GS 2029 security at a weighted average yield of 6.5828% and selling various short term papers – INR 6,825 Cr. First, weighted average cut off yield is nearly 16.5 bps lower pre-announcement levels of 6.748%. Second, RBI has net bought INR 3,175 cr worth bonds, it should increase the liquidity in system.

Date	10 year yield	1 Year yield
19-Dec	6.7460%	5.5860%
20-Dec	6.5980%	5.8530%
24-Dec	6.5560%	5.5840%
Change	0.1900%	0.002%

Above table shows that – Short term yield (1 year) had initially spiked to 5.8530% from the pre-announcement level of 5.5860% but finally settled at 5.5840%. So there is almost no change in short term yields due to this operation. On the other hand, 10 year bond yield continued corrected nearly 19 bps from pre-announcement levels. USDINR pair opened the session at 71.22 on a flat note against previous close of 71.1850. USDINR pair has first support at 71.08-71.11 levels and second support at 70.97-71.00 levels. USDINR pair has first resistance at 71.30-71.35 levels. Range for the day seen as 71.10-71.35

Currency Market Update - 23-Dec: UK parliament passes Brexit Bill

US economy grew by decent 2.1% in the September quarter confirming outperformance amid struggling global growth. It is noteworthy that US had grown by 3.4% last year during the same period, underlines extent of slowdown in global economy. US dollar index spiked to 97.60 levels. Gains in US dollar were further supported by consumer spending data. US consumer spending grew by 0.4%, a near four month high. On the other hand, UK economy grew by just 0.4% in September quarter. GBPUSD pair could not sustain is intra-day gains despite UK parliament passed Brexit bill with thumping majority - 358 votes to 234 votes. Technically, GBPUSD has strong support at 1.2980. GBPUSD pair should consolidate near this support amid lack of economic data this week.

On domestic front, 10 year bond yields, which corrected nearly 18 bps to 6.57 in two days, will take further cues from result of Operation Twist. RBI is expected to receive strong interest in 6.45% GS 2029 security. USDINR pair opened the session on a flat note at 71.14 against previous 71.12. USDINR pair has first support at 70.97-71.00 levels and first resistance at 71.30-71.35. Range for day 71.04-71.35

Currency Market Update 20-Dec: Operation Twist is here to stay!

Bank of England has kept its monetary policy stance unchanged with interest rates at 0.75%. It is noteworthy that 2 MPC members had voted to cut interest rates on ground of falling inflation and loosening labor markets. BoE expects inflation to ease further to 1.25% before rebounding next year. Consequently, GBP/USD fell further to its two week low levels of 1.2990 and the pair has immediate support at 1.2970. On other hand, US dollar index was seen recovering to 97.40 levels. US dollar index will take further cues from final US GDP numbers, which is expected to print at 2.1%.

On domestic front, RBI has finally ‘bitten the bullet’ by announcing its version of Operation twist. RBI will buy INR 100 Bn on the run 10 year paper 6.45%GS2029 and simultaneously sell various 2020 maturity bonds. This special operation intends to flatten the yield curve without affecting the INR liquidity. It is noteworthy that RBI has been finding it difficult to transmit its rate cut actions with 10 year bond trading near 6.75%, before operation twist, while repo rate at 5.15%. This 160 bps spread, between 10 year bond yield and repo rate, suggests a lack of transmission in markets and increase in credit and tenor risk premium. Domestic 10 year bond yield opened nearly 13 bps lower at 6.62% against previous close of 6.75%. A closer look at details of operation suggest that RBI is buying single long term paper and selling 5 different short term papers, thus intent seems to be higher impact on long term and lower impact on short term. It also seems that this operation is not one-off and RBI might further announce such twist operations. On currency front, USDINR opened the session at stronger note at 71.15 against previous close of 71.04. PSBs have been intermittently buying currency future on exchanges leading to rally in USDINR pair. USDINR pair has first support at 70.97-71.00 levels and first resistance at 71.30-71.35. Range for day 70.97-71.35.

Currency Market Update 19-Dec: BoE to drive Cable!

Financial markets have remained broadly unchanged despite Trump impeachment by the House of Representative. Trump is expected to get exonerated in a Senate trial, owing to majority of Republicans. Consequently, S&P index closed little changed at 3191 and US dollar index trading flat at 97.34. GBP/USD pair found some support near 1.3050, which is pre-election low. Consumer prices in UK rose by 1.5%, against expectation of 1.4%, lending some support to cable. Later today, Bank of England is expected to keep its monetary policy stance unchanged. Markets will keenly watch BoE’s economic assessment given the relative clarity on political front.

On domestic front, GST council decided against raising tax rate despite dwindling GST collections. Ironically, RBI Governor, Shaktikanta Das suggested that prevailing economic conditions are appropriate to deviate 0.5% from fiscal deficit path recommended by FRBM’s committee. This statement is likely to resonate with ‘North Block’, which is finding it difficult to maintain deficit. Consequently, India’s 10 year bond yields rebounded to 6.74% from 6.70%.Yesterday, USDINR witnessed selling pressure amid plausible PSU inflow. USDINR pair opened the session on a flat note at 70.99 against previous close of 70.97. USDINR pair has support at 70.75-70.80 levels and resistance at 71.07-71.12 levels. Range for the day 70.85-71.10.

Currency Market Update 18-Dec: Volatility as usual in Cable

GBP/USD pair tumbled to 1.3090, correcting nearly 3% from election high of 1.35, amid concerns of hard Brexit. It is noteworthy that Boris Johnson had maintained that UK would not extend negotiation period beyond 2020 during election speeches. Thus, this move seems more of correction before a rally. Going forward, Cable will take further cues from UK’s CPI inflation number, to be released later today. Technically, GBP/USD pair key supports at 1.3050 and 1.2980 levels. On other hand, US dollar index witnessed a mild recovery after release of strong housing market data. House construction permit surged to 12 year high of 1.48 M.

On domestic front, IMF chief economist Gita Gopinath suggested that IMF is likely to significantly cut India’s growth forecast amid slowing consumption and private investment. India’s 10 year bond yields, which corrected to 6.73%, will take further cues from the outcome of GST meet, later during the day. It is noteworthy that Government has set difficult monthly target of INR 1.1 Trillion for GST collection. USDINR pair opened the session at flat note at 71.04 against previous close of 70.97. Partially convertible rupee is likely to trade with weakening bias amid continued buying pressure from national banks. USDINR pair has first support at 70.97 and second support at 70.90. USDINR pair has first resistance at 71.19 and second resistance at 71.28-71.30 levels. Range for day 70.90-71.20

Currency Market Update 17-Dec : US dollar index near key supports 97.00

GBP/USD pair corrected more than 1% amid news that UK will not extend the trade negotiation beyond Dec-2020. Correction in Cable was further supported by soft UK manufacturing PMI numbers, which released at 47.4 against previous reading of 48.9. On other hand, US dollar index was able to hold on to a key support of 97.00, after release of US manufacturing PMI numbers. US manufacturing PMI released at 52.5, making it only major economy with an above 50 PMI manufacturing reading.  

On domestic front, WPI inflation rose by 0.6% amid spike in food prices. WPI food inflation surged to 71 month high levels of 11.1%. India’s 10 year bond yield is trading flat at 6.77% after switch auction of government securities. USDINR pair opened the session on a flat note at 70.95 against previous close of 70.98. USDINR pair has support at 70.75-80 levels, first resistance at 71.05 levels and second resistance at 71.30 levels. Range for the day 70.85-71.15.

Currency Market Update 16-Dec :China confirms phase 1 deal

China has confirmed that it has reached a phase 1 deal with US. Consequently, USDCNH pair slipped below 7.00 handle and S&P index rallied to fresh all time high of 3168.8 on closing basis. On the other hand, GBP/USD surged to 1.34 handle as Conservative party won 365 seats out of 650. Boris Johnson’s victory should pave the way for smoother Brexit, thus reducing uncertainty in UK economy.  

On domestic front,  Arcelor Mittal has transferred nearly INR 40,000 Cr, on Friday, to SBI confirming the conclusion of nearly $6 Bn inflow. India 10 year bond yields corrected nearly 8 bps tracking decline US yields. USDINR pair opened the session on a flat note at 70.75 against previous close of 70.81. USDINR pair support at 70.50-55 levels and resistance at 70.85-90 levels. Range for day 70.55-90.

Currency Market Update 12-Dec :FED Pause focus shifts to UK election

As expected, US FED, which had suggested a pause in the last meet, has kept the interest rates unchanged at 1.50%-1.75%. US FED’s dot plot also suggested that FED is unlikely to cut interest rates in 2020 and it might start raising rates from 2021. US FED official projections showed that labor market likely to remain strong with unemployment rate to be 3.5% in 2020 and core inflation might remain below 2%. At the press conference, Powell suggested that FED might not raise interest rates until core inflation stabilize above 2%. It is noteworthy FED’s core inflation, median forecast remain at 2% until 2022. Consequently, US 10 year bond yields fell to 1.80% and US dollar index fell to 97.00.

Cable might witness wild moves as UK votes again to resolve Brexit crisis. GBP/USD pair has spiked to 9 months high levels of 1.3220 on expectations of a Conservative victory. As discussed earlier, 25 delta risk reversal volatility is suggesting that risks are skewed on the downside. Unless, Conservative party win with significant majority there could considerable correction in Cable. On the other hand, EUR/USD pair, which spiked to 1.1140 on softer dollar, will take further cues from Christine Lagarde’s first monetary policy. ECB is likely to remain dovish while keeping its policy unchanged. Technically, EUR/USD pair has significant resistance at 1.1170-1.1180 levels and Euro might find it difficult to break it given gloomy economic outlook.

On the domestic front, 10 year bond yields surged to 6.75% as S&P warned that it may lower India’s rating if economic growth does not recover. USDINR pair opened the session on a weak note at 70.69 amid the softness in US dollar index. USDINR pair has first support at 70.55-60 levels and second support at 70.35-40 levels and resistance at 70.85-90 levels. Range for day seen as 70.55-70.82.

Currency Market Update - 10-Dec :INR rally amid strong inflows

Price action in Cable remained biddish amid increasing possibility of Conservative victory, later this week. GBP/USD’s one month 25 delta risk-reversal volatility is quoting -2.65/-1.85, this suggests that market currently pricing more down-side risk in GBP/USD. On the other hand, EUR/USD pair was seen recovering ahead of German ZEW economic sentiment. ZEW economic sentiment has remained in negative territory since May-19.

On domestic front, 10 year bond yield retraced slightly to 6.64% tracking US yields. INR continued to gain amid backdrop of various inflows, in spite of growth and fiscal concerns. USDINR pair opened the session at 70.96 against previous close of 71.05. USDINR pair has support at 70.70-75 levels and resistance at 71.08-12 levels. Range for day seen as 70.75-71.10.

Currency Market Update - 9-Dec :Strong NFP rebounds Dollar

US dollar index recovered sharply to 97.70 after the release of strong US jobs report. US economy added nearly 255k jobs in November and unemployment rate fell to 3.5%, fading any concerns of recession. Consequently, US 10 year bond yield jumped to 1.84% and S&P 500 index to 3145. On the other hand, China trade surplus fell to USD 274 Bn as exports fell by 1.1% and imports increased by 0.3%. USD/CNH pair trading flat at 7.0320 ahead of possible tariff hike deadline of 15 Dec.

On domestic front, 10 year bond yield continued their upward journey amid worsening fiscal deficit concerns. Domestic yield gains should be further supported by spike in US treasuries. USDINR pair opened the session on strong note at 71.30 against previous close of 71.19. USDINR pair has support at 71.10-15 levels and resistance at 71.44-48 levels. Range for day 71.10-71.40. 

Currency Market 6-Dec :RBI MPC surprises with pause!

GBP/USD pair surged to seven month high levels of 1.3160 levels as Conservative party moves closer to winning elections. The gains in GBP/USD pair were further supported by rising UK 10 year bond yield. EUR/USD pair surged above 1.11 handle despite dismal German factory order and Euro retail sales numbers, which declined by 0.6% M-o-M basis.

On domestic front, RBI’s monetary policy committee kept interest unchanged at 5.15% and retained its accommodative stance. RBI’s MPC has lowered growth forecasts from 6.1% to 5%, owing to dismal economic activity in Q2. MPC also raise its inflation forecasts for H2 FY 19-20 from 3.5-3.7% to 4.7-5.1%. It seems that given low marginal utility of another rate cut and hardening inflationary pressure RBI MPC decided to pause.

Bond and currency markets have shown contrasting reactions as Bond yields surged to 6.63% and INR appreciated nearly 30 paisa to 71.30. Bond markets are expected to trade with negative bias amid overhang of excess bond supply. On currency front, USDINR opened the session at 71.26 against previous close of 71.28. USDINR pair has first support at 71.25-28 levels and second support at 71.10-15 levels. USDINR pair has first resistance at 71.44-48 levels. Range for day 71.15-71.40

Currency Market Update - 5-Dec :All eyes on RBI

Cable broke through the strong resistance of 1.3010 amid expectation of Conservative party winning the election. The gains in GBP/USD pair, which rallied more than 1% to 1.312, were further supported by stronger UK service PMI. On the other hand, Trump took another U turn by suggesting that US, China trade talks were going “very well”. Consequently, USD/CNH pair corrected to 7.055 from 7.08 and US 10 year bond yield rebounded to 1.76%.

On domestic front, RBI monetary policy committee is likely to cut interest rate by another 25 bps to arrest the slowdown in domestic economy. It is noteworthy that RBI has already cut interest rates by 135 bps in current cycle but transmission has been tepid. To improve the transmission, there has been some murmurs of operational twist, wherein RBI will buy long term bonds and sell short term bonds. India’s 10 year bond yields remained elevated at 6.45% amid worsening fiscal deficit.

USD/INR pair opened the session on a flat note at 71.53 levels. USD/INR pair will take further cues from RBI monetary policy actions and it forward guidance. USD/INR pair has first support at 71.28-71.31 levels and second support at 71.12-15 levels. USD/INR pair first resistance 71.67-70 levels and second resistance at 71.90. Range for the day – 71.30 to 71.80 owing to RBI policy.

USDINR Daily Update - 4-Dec

Global equity markets tumbled as Trump suggested that US, China deal might be signed after Nov-20 elections. Consequently, USD/CNH pair zoomed past 7.07, US 10 year treasuries slipped below 1.73% and USD/JPY fell to 108.50. On the other hand, GBP/USD pair spiked toward 1.30 handle amid favorable opinion polls for Boris Johnson.

Yesterday, Rupee reacted adversely to US, China trade deal concerns as it fell nearly 25 paisa on intraday basis. Going forward, market will closely track US non-manufacturing PMI numbers and RBI monetary policy action. USD/INR pair has immediate support at 71.65-68 levels and first resistance at 71.80-82 and second resistance at 71.88-92 levels. Range for the day 71.65-71.92

USDINR Daily Update - 3-Dec

Trump raised tariffs on steel and aluminum imports from Brazil and Argentina. Trump alleged tight monetary policy and stronger dollar putting pressure on US manufacturing industry. Consequently, US dollar index fell nearly 0.5% to 97.90. Weakness in US dollar index was further supported by weak ISM manufacturing PMI. US manufacturing PMI printed 48.2, remained below 50 for fourth consecutive month. Euro turned out to be the prime beneficiary of a weaker dollar as EUR/USD pair bounced towards 1.1075.

On domestic front, RBI will kick start its fifth Bi-monthly monetary policy of 2019-20. RBI is expected to ease further amid slowing domestic economy. Today, RBI will conduct INR 2.6 trillion reverse repo auction to reduce excess liquidity from the banking system. USDINR pair opened the session on a flat note at 71.70. USDINR pair has immediate support at 71.48-50 levels and immediate resistance at 71.78-82 levels. Range for the day 71.45-71.82.

USDINR Daily Update - 2-Dec

US Dollar index has failed to close above crucial resistance of 98.45, as EUR/USD pair rebounded above 1.10 handle. Eurozone flash CPI inflation printed 1.0% reading against previous reading of 0.7%. USD/CNH pair is trading flat at 7.03 even after Chinese manufacturing PMI spiked to a 8 month high of 50.2.

On the domestic front, India’s GDP growth slowed further to 4.5% in Q2 and core sector output contracted by 5.8% in Oct-2019. On other hand, GST collection witnessed a positive growth of 6% to 1.03 trillion. USDINR pair opened the session on a flat note at 71.78. USDINR pair has support at 71.45-50 levels and resistance 71.88-92 levels. Range for the day 71.50-71.90.