Published on 16/11/2019 12:12:38 PM | Source: ICICI Direct

US$ likely to remain in range in absence of any major trigger in near term - ICICI Direct

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US$ likely to remain in range in absence of any major trigger in near term…

* Dollar index witnessed profit booking :

The US dollar index witnessed profit booking in October and ended lower capping consecutive gains of three-months. The dollar index declined from its almost 28-month highs near 99.66 levels to end October at 97.35, down over 2%. A sharp up move in GBP and Euro due to postponement of Brexit date till January 31, 2020 supported major currencies over US$. The Federal Reserve in its October policy meeting cuts interest rates by further 25 bps, a third rate cut in the cycle. However, the Fed also hinted at the strength of the US economy, reduced risk over US-China trade worries and declining possibility of UK’s disorderly exit from EU bloc. This has effectively ruled out immediate rate cuts from the Fed


* Rupee ends mildly lower :

The rupee ended October at 70.92, slightly changed as domestic worries were countered by favourable global factors like soft US$, appreciating Chinese Yuan. The Indian currency is likely to remain anchored to moves in Chinese Yuan in the backdrop of softening US$ and steady oil prices


* Futures & options activity :

In dollar-rupee options segment, 71.0 strike has the highest Put and Call OI. US$INR pair has near term support at 70.50 levels. We expect the pair to trade in the range of 70.50 -71.80 in the near term. Downsides in the pair should be utilised to initiate long positions


Euro rebounds amid improving risk sentiment, reduced concerns on no-deal Brexit

* Euro ended on a positive note registering decent gains of over 2.30%. As such, Euro ended its three month losing streak. Declining concerns over UK’s disorderly exit from the EU bloc as well as profit booking in the US$ has helped the Euro

* Eurozone HICP inflation growth witnessed a further cool-off in September. It declined to 0.8%, which is lowest since November 2016. Inflation is drifting away from ECB target of just below 2%. This is likely to see ECB continue its dovish trajectory

* Euro–US$ is likely to face hurdle near 1.12 and may trade in the range of 1.125–1.09. Further weakness in the US$ remains key for Euro to rise towards 1.15


JPY likely to see some weakness amid improving sentiment towards riskier currencies

* US$JPY ended October almost unchanged near $/108¥ levels. Declining risk aversion coupled with Bank of Japan’s continued ultra loose monetary policy kept JPY in a range

* Bank of Japan’s inflation gauge National CPI has slumped to 0.3%, lowest since April 2017. Inflation levels have been declining consistently for three consecutive months. Lower inflation would see Bank of Japan continue with easy monetary policies

* JPY continues to hover near 108 levels. We expect it to trade in the range of 105.5–111 levels while any fallout in the US-China likely trade pact could see JPY rising towards 104 levels


GBP upbeat as Brexit likely delayed till January 31, 202

* GBPUS$ extended huge gains for a second consecutive month. It closed October at 1.294, up over staggering 5.2% as Brexit was most likely delayed till January 31, 2020 and also due to declining possibility of a “No-deal” disorderly exit of the UK from EU bloc

* CFTC data shows sharp closure in GBP net short positions. It declined from 34% of total OI in September to 15% in October

* GBP is likely to remain upbeat as imminent risk of UK crashing out of EU bloc has dissipated. We expect GBPUS$ to trade in the range of 1.26-1.33 levels in the near term. However, likely UK election outcome is a key trigger for the pair


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