Currency Market 31-Jan: All Eye on Budget

Globally, Bank of England decided to keep interest rates unchanged at 0.75% with 7-2 majority. BoE now expects that UK economic activity might pick-up in the short term amid a recovery in global growth and reduced uncertainty over Brexit. It is noteworthy that UK’s PMI have spiked to multi-month high levels, suggesting early sign of turnaround in UK. Consequently, GBP/USD pair surged to 1.31 handle and it might test near term resistance at 1.3150-70 levels. On other hand, WHO recognised ‘Novel Coronavirus Outbreak’ as a public health emergency of international concern (PHEIC) . USDCNH pair, which had spiked above 7.00 handle, is trading near 6.9760 levels and USDJPY pair, which had fell to 108.57 levels, is trading near 109 handle.  

On domestic front, India’s CEA, Krishnamurthy Subramanian will present Economic Survey 2020 and it will set the tone for Budget tomorrow. Given, lower tax revenue and weaker disinvestment activity Government is very likely to miss fiscal deficit target of 3.3% in current FY. However, given the broad economic slowdown it is expected that government will take leeway available in the FRBM to allow fiscal deficit to worsen. Since, government expenditure should be counter-cyclical in nature, government should continue with a higher deficit in the next fiscal, along with fresh time line to achieve 3% fiscal target. In larger time frame, Bond markets have been trading with bearish bias on expectation of worsening fiscal deficit. Thus, budget should provide fresh leg of movement and “Buy the Rumours sell the facts” nature of financial markets might lead to a rally in bond prices. On currency front, USDINR pair is trading flat near 71.43-44 levels. USDINR pair has immediate resistance at 71.56 levels and immediate support at 71.30 levels. Day range seen as 71.30-71.56 levels.

Currency Market 28-Jan: Government to sell 100% Stake in Air India

Globally, major currency pair continued their trends amid lack of key economic data release. The EUR/USD pair slipped to near two month low of 1.1020, as German Ifo Business Climate released at 95.9 against previous reading of 96.3. US dollar index, which is trading near 97.90 levels, will take further cues from consumer confidence and durable goods order data. On the other hand, USDCNH is surged to fresh high at 6.9750 amid concerns regarding Coronavirus. Consequently, Japanese Yen is trading near 109 handle and US 10 year bond yield 1.62%.

On domestic front, Government announced fresh disinvestment plan of Air India with better terms. This time government is willing to sell 100% stake and it has also carved out debt liability to one-third. 10 year bond yield is trading flat at 6.56%. On currency front, USDINR pair is trading at 71.35-71.36 levels. Technically, USDINR is expected to test 71.25-27 levels and 71.51 on higher side.

Currency Market 27-Jan: Cable tumbles despite stronger PMI

Globally, GBP/USD pair fell to 1.3050 levels despite the release strong PMI numbers. UK’s service PMI improved to 52.9 and manufacturing PMI improved to 49.8 levels. It is noteworthy that the market is currently expecting nearly 55% chance of rate cut, later this week, despite stronger wage growth and PMI numbers. Technically, GBP/USD pair has support at 1.30 handle, a break below might lead to a sharp decline in pair. On the other hand, Chinese yuan continued to trade with a weakening bias amid a rising death toll due to Coronavirus. Chinese national holidays have been extended by 3 days to contain the outbreak.

On domestic front, 10 year bond yield slipped to 6.55% amid sharp decline in US 10 year yields and crude prices. On currency front, USDINR pair is trading near 71.45-71.46 levels, tracking spike in USDCNH pair. Given the weakness in Chinese yuan is primarily on account of Coronavirus, which has not affected India, so weakness in rupee may be short lived. Technically, USDINR pair is trading outside the upper bollinger band in hourly chart, thus gives an opportunity to sell pair at CMP 71.45 with stop at 71.57, which is 61.8% retracement of previous move, and a target of 71.27 levels

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 

Currency Market 20-Jan : Cable tumbles on weak retail sales

Globally, UK economic data continued to paint grim picture of economic activity. UK retail sales declined by 0.6% in December (M-o-M). It is noteworthy that UK retail inflation has also slowed to 1.3% in December. Consequently, GBP/USD pair fell to 1.30 handle amid increasing expectation of a rate cut by Bank of England.  BoE, which is scheduled to meet on 30 Jan, had voted to keep rates unchanged with 7-2 in December. Currently, market is pricing nearly 70% probability of 25 bps rate cut in Jan meeting. On the other hand, Crude oil prices spiked to $65.50 per barrel amid internal tensions in Libya, resulting in partial reduction in oil supply. Today, US markets will remain closed due to Martin Luther King Jr. Day.On domestic front, 10 year bond yield spiked to 6.64% amid nearly INR 2500 Cr outflow from government securities. 

On currency front, USDINR pair is trading flat at 71.08 level against Friday levels of 71.06. USDINR pair might trade with biddish bias amid delay in IPO related flows and outflow from debt. USDINR pair has resistance at 71.25 levels and USDINR pair has support at 70.95 levels. The range for day seen as 70.95 to 71.25 levels

Currency Market 17-Jan : Twist and Switch Combined :)

Globally, US dollar index recovered to 97.40 levels after the release of stronger core-retail sales. US core retails sales grew by 0.7% against previous reading of 0.0% (M-o-M). Improved retail sales number can also be attributed to Festive and New Year related spending. On other hand, USDJPY continued to trade above 110.0 levels amid a recovery in risk assets. GBP/USD pair, which is trading near 1.3070 levels, will take further cues from retail sales numbers, due to release later today.

On domestic front, RBI announced fourth tranche of Operation twist, wherein RBI will buy INR 10,000 bonds of 2024 and 2029 maturities and sell 2021 maturity bonds. At same time, RBI also announced switch operations of INR 25,0000 bonds. Government will buyback 2020 maturity bond and will sell INR 20,000 worth 2029 bonds and sell INR 5,000 worth 2024 bonds. These two operations combined should result in increase of duration of investors. It is noteworthy that today, RBI will also conduct a scheduled auction of INR 16,000 bonds. In this auction the share of 2029 maturity bond will be INR 7,000 cr.

On currency front, USDINR pair has been trading with biddish bias at 70.98 levels. USDINR pair has support at 70.75 levels and USDINR pair has first resistance at 71.05 levels and second resistance at 71.25 levels. The Range for the day seen as 70.75 to 71.15

Currency Market 16-Jan: Trade Deficit narrows to $11.25 Bn

Globally, US and China signed phase 1 trade deal, wherein China will increase imports from US and US will reduce tariffs on Chinese goods. It is noteworthy that US has removed China from list of currency manipulator. Amid this backdrop, Chinese Yuan has rallied more than 2% to 6.88 levels and USDJPY trading near 110.0 levels. On other hand, a weaker UK CPI reading has fueled the expectation of interest rate cut by BOE. UK CPI inflation eased further to 1.3% against previous reading of 1.5. Though, GBP/USD pair remained bullish as it spiked to 1.3050 despite weaker CPI.

On domestic front, India’s trade deficit narrowed to $11.25 Bn in December as exports fell by 1.8% to 27.36 bn and imports fell by 8.83% to $38.61 bn. In FY 2019-20, trade deficit has witnessed sustained contraction against last year. For Apr-Dec period, exports declined by 1.9% to $239.20 bn and Imports declined by 8.9% to $357.39 bn reducing trade deficit to $118.10 Bn. Thus trade deficit has reduced nearly 17% from $141.21 bn to $118.19 bn. A closer look at declining imports shows that it is primarily on account of slowing domestic economic activity. Hence, though, contracting trade deficit is a good news but celebration should rather be delayed!

On currency front, USDINR pair has again rebounded from 70.75 levels and now trading near 70.85 levels. USDINR pair has support at 70.70 levels and USDINR pair has resistance at 71.05 levels. The Range for the day seen as 70.70 to 71.05.

Currency Market 14-Jan : Yields surge as CPI breaches target range

Globally, US decided to remove China from list of currency manipulator ahead of US-China phase 1 deal. Consequently, Chinese Yuan rallied to six month high levels of 6.87 and USDJPY surged above 110.0 handle on improving risk sentiments. This move confirmed that currency manipulation tag was just a negotiation tool. On other hand, GBP/USD slipped below 1.30 levels after release weak manufacturing production numbers, which contracted by 1.7% on a monthly basis.

On domestic front, Retail inflation breached upper limit of RBI’s inflation target (4%-6%) with a reading of 7.35% in December-19. Higher retail inflation can be attributed to 14% food inflation and unfavourable base effect. It is noteworthy that CPI inflation was at just 2.19% in December-18. Consequently, Domestic 10 year bond yield surged nearly 10 bps to 6.69% against previous close of 6.59%.

Yesterday, RBI notified that it has switched GOI securities worth INR 41,920.23 Cr. RBI sold various bonds with tenure less than 1 year and bought back bonds in 2027 and 2030 maturities. This operation should reduce the gross borrowing of government in next fiscal and should support the yields. On other hand, this operation should reduce the likelihood/quantum of ‘operation twists’, thus lead to bond sell off.

On currency front, Rupee could not sustain its overnight gains amid sell off in bond markets. USDINR pair is currently trading at 70.90 levels. USDINR pair has support at 70.70 levels and USDINR pair has resistance at 71.05 levels. The Range for the day seen as 70.75 to 71.05.

Currency Market 8-Jan : Risk See-Saw as Iran hit US base champ

Globally, financial markets witnessed risk-off swing after Iran launched multiple missiles on US military bases in Iraq. Crude had initially spiked to 71.75 than fell back to 69.30 levels and USD/JPY promptly tested 107.60 levels before recovering to 108.30. The recovery in USD/JPY can be attributed to lack of fresh escalation in Trump’s tweet.  “All is well! Missiles launched from Iran at two military bases located in Iraq. Assessment of casualties & damages taking place now. So far, so good! We have the most powerful and well equipped military anywhere in the world, by far! I will be making a statement tomorrow morning”. Given, this backdrop USD/JPY pair can be shorted at CMP 108.35 with stop above 108.70 for first target of 107.70 and second target of 106.50.

On domestic front, India’s GDP growth for FY 2019-20 is estimated to be at 5% against 6.8% last year. Given lower than 5% realized growth in first half, CSO expects economy to pick-up some steam in last quarter. On fiscal front, Government has been pushed into a tight corner as slower growth will lead to lower revenue realization and spending cut will put further pressure on economy. 

On currency front, Few banks have been trading outside earlier trading window of 9 AM-5 PM, as Onshore INR becomes tradable 24 hours. USDINR currently trading on firm footing at 72.01 tracking global riskoff sentiments. USDINR pair has first resistance at 72.12 levels and second resistance at 72.25 levels. USDINR pair support at 71.80 levels. Range for the day seen as 71.80-72.25 with bias to buy on dips.

Currency Market 7-Jan : Rupee 24*5 :)

Globally, Risk off sentiments took a pause amid lack of fresh escalation between US and Iran. For instance, USD/JPY rebounded to 108.50, Brent crude slipped to $68.06 and gold eased to $1558 levels. On other hand, EUR/USD surged to 1.12 handle after release of improved PMI numbers. German service PMI printed 52.9 and Euro area service PMI printed 52.8 against previous reading of 52.4. EURUSD pair will take further cues from CPI numbers, due to release later during the day. 

On domestic front, RBI announced a major reform to allow “Authorised dealer undertake customer (persons resident in India and persons resident outside India) and inter-bank transactions beyond onshore market hours”. This move is expected to improve share of onshore volume vis-à-vis offshore. It is noteworthy that 24 hour rupee trading was one of the recommendations by the Task Force on Offshore Rupee Markets. 

RBI concluded third Operation Twist by buying INR 10,000 cr bonds, with share of 10 year bond just INR 1,111 Cr and selling INR 10,000 cr bonds. Benchmark 10 yield should have minimal impact of this particular operation. It is noteworthy that in previous two occasions RBI had sold less than notified INR 10,000 cr worth bonds. On currency front, USDINR pair opened the session on a weak note at 71.76 against previous close of 71.94 levels. USDINR pair has first resistance at 71.80 levels and second resistance at 72.10. USDINR pair has first support at 71.50 levels and second support at 71.35. Range for day seen as 71.66-71.95.

Currency Market 6-Jan: Risk off rally amid US Iran Tensions

Globally, escalating tensions between US and Iran took the centre stage as Trump threaten to attack Iranian cultural sites. While, Iran decided to step back from nuclear deal to underline its intents against Suleimani killing. Consequently, Crude oil spiked to 7 month high levels of 70.50, Gold rallied to $1580, USD/JPY tumbled to two month low 108 levels. These geopolitical tensions might remain elevated amid plausible advantage for Trump in upcoming elections.

On domestic front, India’s 10 year bond yields, which had rallied nearly 28 bps on Operation Twists, rebounded to 6.54% amid prevailing geopolitical tensions. On other hand, Today, RBI will conduct third operation twist to flatten the yield curve. RBI will buy and sell INR 10,000 worth bonds of three different maturities of 5,7 and 10 years and sell 1 year maturity bond. On currency front, USDINR opened the session on strong note at 72.01 against previous close of 71.795. Partially convertible rupee is likely to trade with a weakening bias amid geo-political tensions. USDINR pair has first resistance near 72.18-72.22 levels and second resistance at 72.40-72.45 levels. USDINR pair has support at 71.75-80 levels. The range for the day seen as 71.90-72.20