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

Currency Market Updates: 27-Aug

Globally, US equity markets closed flat after the release of core-durable goods data.Durable and core-durable goods orders increased by 11.2% and 2.4% respectively. US 10 year bond yield eased slightly from key resistance levels of 0.7%. US treasuries will take further cues from speech of FED Chair, Powell, which is scheduled later during the day. EUR/USD pair continued to consolidate near 1.1830 levels.

On domestic front, Government 10 year bond yield re-surged to 6.21% amid concerns of rising inflation and government borrowing. Yesterday, USDINR pair spiked 74.45 in first half and gave up most of its gains in second. USDINR pair has immediate resistance near 74.45-50 levels and immediate support near 74.15-20 levels. Intraday range seen as 74.15-74.45

Currency Market Updates 26 Aug

 

Globally, US equity markets closed in red after the release of disappointing US consumer confidence data. US consumer confidence released at 84.8 against the previous reading of 91.7. US dollar index remained broadly unchanged as it seen consolidating near 93 handle. US dollar index will take further cues from speech of FED Chair, Powell, which is scheduled for Thursday.    

On domestic front, 10 year bond yield eased after RBI’s operation twist announcement of INR 20,000 cr. It is noteworthy that northward journey of yield was initiated by MPC’s meeting minutes. MPC has been clearly uncomfortable with spike in inflation in recent months. Yesterday, USDINR pair gave away its intra-day gains after retesting 74.50. Intra-day range seen as 74.08-74.50.  

Currency Market Updates: 25 Aug

 

Globally, US equity markets rallied more than 1% after the positive news regarding US-China phase 1 trade deal. EUR/USD pair is trading flat near 1.1815 levels amid lack of key economic data from Eurozone and US. USD/JPY pair is trading in tight range between 105.69-106.10 levels.

On domestic front, RBI has announced INR 20,000 Cr bond operation twist; RBI will simultaneously buying long term (2024-2032) securities and selling short term (2020) securities. It seems that RBI is uncomfortable with spike in India’s 10 year bond yield, which had rallied to 6.22%. On currency front, partially convertible rupee witnessed sharp gain on chunky inflow coupled with lack of volume and peculiar absence of RBI. It is noteworthy that USDINR market depth has certainly reduced in covid enforced truncated market environment. Thus accentuating one-off volatile events in rupee markets. Technically, USDINR pair has given a break-down of contracting triangle formation. USDINR pair has immediate resistance at 74.50 levels and immediate support near 74.08-10 levels. Intraday range seen as 74.08-74.50

Currency Market Updates: 24 Aug

 Globally, US dollar seems to recovering after the release of US flash manufacturing and service PMI data at 53.6 and 54.8 respectively. EUR/USD pair slipped below 1.18 handle after the release of weaker service and manufacturing PMI data. Asian equity continued to trade with biddish bias with Hang Seng index is trading nearly 1.5% in green.

On domestic front, equity markets are trading in green with nifty index up nearly 0.6%. India 10 year bond yield spiked above 6% after release of MPC's meeting minutes. It is note-worthy that MPC had kept interest rates unchanged due to spike in inflation. USDINR pair is trading flat near 74.90 levels. USDINR pair might find some support amid recovery in US dollar index. Intra-day range for the pair is seen 74.85-75.05

Currency Market Updates: 21 Aug

 

Globally, risk rally in financial markets took a breather after the release of FED meeting minutes on Wednesday. FED official raised the growth concerns in US economy amid pandemic and need of fiscal stimulus. Consequently, EUR/USD pair tested key support near 1.18 handle before rebounding to 1.1860 level. Overall, risk rally likely to resume with a mild recovery in Dow and Asian indices trading in green. EUR/USD pair will take further cues from Europe and US PMI data, due to release later during the day.

 

On the domestic front, Reserve bank of India’s MPC’s meeting minutes underlined shortcoming of inflation targeting regime in India (owing to over-dependence on food inflation, which is more driven by supply-side). While the economy is reeling under pandemic, RBI might have to take a course correction to stem CPI inflation. It is noteworthy that CPI inflation has surged to 6.93% in Jul primarily on account of food inflation, which surged to 9.6%. USD/INR pair is likely to open near 74.95 levels. Technically, USDINR pair is forming a contracting triangle formation, a break above 75.20 can lead to a substantial rally in the pair. The range for the day is 74.85-75.13.

Currency Market Updates: 15-Jul

Globally, US equity market gained another 2% after the release of better than expected CPI inflation. US CPI released at 0.6% m-o-m basis against previous reading of negative 0.1%. On the other hand, Euro continued to trade with biddish bias against its US counterpart as EUR/USD pair surged to 1.1420 levels. Technically, EUR/USD pair has multiple resistance b/w 1.1430-1.1450. We can initiate short EUR/USD position near 1.14 handle with a stop of 1.1450 and a target of 1.1270. EUR/USD pair will take further cues from ECB meeting, scheduled tomorrow.  

On the domestic front, the expectations of further easing by RBI have reduced after the release of stronger CPI inflation in June. CPI inflation spiked to 6.09% in June-20 against 5.91% inflation in March-20. It is noteworthy that government had not declared CPI data for April and June. Interestingly, perishable food inflation i.e. vegetable inflation fell to 1.86% and fruit inflation contracted by 0.68%. Overall food inflation remained elevated near 7.87% due to surge in prices in non-perishable category. USD/INR pair is trading at 75.30 levels. USDINR pair has resistance near 75.45-75.50 levels and support at 75.25 levels.

Currency Market Updates: 10 Jul

Globally, the EUR/USD pair witnessed significant selling above 1.1350 levels. EUR/USD pair slipped further to 1.1275 after the release of US unemployment claims. US unemployment claims released at 1314k against the previous reading of 1413k. On the other hand, US equity markets witnessed mild correction as Dow Jones fell by more than 1%.

On the domestic front, Nifty is trading 0.5% down at 10760, tracking weakness in US equity markets. India 10 year benchmark bond yield is trading flat near 5.78%. The partially convertible rupee started to weaken as fundamental took back centre stage after completion of large inflow. USDINR pair is trading at 75.25 levels. USDINR pair has immediate resistance at 75.45-50 levels and support at 75.00 levels

Currency Market Updates: 8-Jul

Globally, the Reserve bank of Australia kept monetary policy stance unchanged with interest rate at 0.25%. Besides other FED members, Quarles also raised the concerns over economic recovery amid rising COVID-19 cases in US. On the other hand, EUR/USD pair is trading flat near 1.1275 levels after the release of German industrial production, which grew by 7.8% on a weaker base.

On the domestic front, Equity markets are holding well with nifty near 10800 levels despite the mild correction in US markets. In last two days, One of large corporate paid USDINR forward premium across the tenure leading June premium spiking to 292 levels. USDINR pair has shown an early sign of recovery with pair rebounding to 74.94 from 74.67 levels. Overall, USDINR pair has support near 74.65-70 levels and resistance near 75.10-15 levels

Currency Market Updates: 2 Jul

Globally, as FED meeting minutes, US economic data for Apr-June quarter is expected to dismal and US economy would require ultra-supportive monetary policy to support economic recovery. US FED members also discussed about the yield curve controlled. (A policy measure implemented by Bank of Japan). US manufacturing PMI data surprised on upside at 52.6 against previous reading 43.1. On the other hand, Euro manufacturing PMI released below 50 at 47.4.

On domestic front, GST collection in June month stood at INR 90,917 Cr. It is noteworthy that as Government had allowed relaxation of GST tax filing in April, May. A lot of transactions of previous months were filed in June. 10 year benchmark bond yield fell to 5.84%. USDINR pair trading flat near 75.50 levels. USDINR pair has support near 75.35-40 levels and resistance near 75.80-85

Currency Market Updates:1 Jul

Globally, noted immunologist Anthony Fauci warned against the possibility of 100k daily covid cases in US. US equity markets continue to rally largely detached of underlying conditions. EUR/USD pair is trading flat near 1.1220 levels. The pair will take further cues from manufacturing PMI data of US and Europe.

On domestic front, India witnessed marginal current account surplus of $0.6 Bn in Jan-Mar-20. Current account surplus can be attributed to narrowing trade deficit (due to lower crude and slowing economy), higher service and private receipts. On FY basis, Current account deficit narrowed to 0.9% of GDP in FY 20 against 2.1% of GDP in FY19. USDINR pair is trading flat near 75.55. USDINR pair has immediate support near 75.35-40 levels and immediate resistance at 75.80-85 levels.

Currency Market Updates: 30th June

Globally, German CPI inflation printed on 0.6% on m-o-m basis against previous reading of -0.1%. EUR/USD pair is trading flat near 1.1240 levels. US equity markets recovered sharply as Dow Jones rebounded to 25.595 levels, nearly 2.3% higher than Friday’s close. US has suspended special treatment for Hong Kong. On other hand, Chinese manufacturing and non-manufacturing PMI released better than expected at 50.9 and 54.4. It is noteworthy that other major economies are struggling with PMI data below 50.

On domestic front, Reserve Bank of India announced another round of operation twist, where in RBI will simultaneously buy (Long term) and sell (Short Term) government security worth INR 10,000 Cr. RBI will buy govt bonds of long maturities (2027,2029,2031,2033) and sell govt bonds of short maturities (2020 & 2021). Operation twist is intended to flatten the yield curve. Today (30^th June) RBI will revalue its FX reserve and balance sheet as per year ending process. Thus, today’s USDINR price closing and RBI Fixing rate hold a lot of significance. Interestingly, there has been a theory in markets that RBI has been proactively intervening in FX markets to keep rupee appreciation in check. Under the new Economic capital framework (ECF) higher value to USDINR may allow RBI to announce higher dividends. USDINR pair has immediate support near 75.35-40 levels and immediate resistance at 75.80-85 levels.

Currency Market Updates: 26 June

Globally, US equity markets recovered a bit after release of durable goods order data, which grew sharply by 15.8% m-o-m on a lower base. US dollar rebounded above 97 levels, gains in US dollar were further supported by concerns of second wave of covid cases. German consumer climate released at -9.6 against previous reading of -18.6.

On domestic front, Government bonds are trading with weakening bias as benchmark 10 year bond yield spiked to 5.91%. Indian rupee is trading with strengthening bias amid expectation of inflow of Jio-Facebook deal. Technically, USDINR pair has strong support near 75.40-75.45 levels, a break below might lead the pair to 75.00. USDINR pair immediate resistance at 75.85 levels.

Currency Markets Update 25 June

Globally, US equity markets fell more than 2.5% amid the concerns of second wave of corona virus. US dollar index recovered a bit to 97.20 levels, it will take further cues from US final GDP data for Jan-Mar’20 quarter, US economy is likely to contract by nearly 5%. German ifo business climate released at 86.2 against 79.7 previous month. 

On domestic front, IMF has sharply lower India’s GDP forecast, as it expect Indian economy to contract by 4.5% in FY21 against an earlier growth projection of 1.9%. As per IMF, impact of this pandemic is likely to felt through currency financial year, as it expect GDP to contract in all four quarters. On the other hand, Government has announced that urban and multi-state co-operative banks will be under supervision of RBI. This step has been taken as a course correction after the fall out of PMC bank. On flows front, USD 5.7 bn Jio-Facebook deal has been approved by CII, market is expecting that flow might hit on-shore in coming weeks. USDINR pair is trading flat near 75.67. USDINR pair has near support at 75.45-50 levels and resistance at 75.80-85 levels.