USD/INR broke out of its tightly held range to move back above 75, in line with higher energy prices. As economists at Société Générale note, higher oil prices is the key near-term risk for USD/INR.

Trade deficit widens to multi-year highs

“The recent surge in oil prices has been detrimental to the INR, and as such the currency should remain under pressure until the supply-related bottlenecks causing the energy crisis abate.”

The trade deficit widened to a record high in September amid surging commodity prices, exacerbating the INR’s recent weakness.”

The RBI recently stopped its bond purchasing programme (GSAP), a clear indication of policy normalisation, and as such we believe that monetary policy should be supportive of the INR in the medium-term, especially with the RBI poised to deliver a rate hike by 2Q22.”

“Foreigners remain net buyers of Indian equities, while they turned net sellers of Indian bonds in October following a couple of months of strong inflows. As such, portfolio flows, despite losing some momentum this month, remain supportive of the currency.”

 

  • EUR/USD leaves behind Monday’s weakness above the 1.1600 yardstick.
  • The greenback falters once again just ahead of the 94.00 barrier.
  • ECB-speak, US Consumer Sentiment next on tap in the docket.

EUR/USD manages to reverse the initial weakness and advances to session tops in the 1.1610/15 band on turnaround Tuesday.

EUR/USD looks to US data, risk trends

EUR/USD bounces off weekly lows near 1.1590 and looks to reverse the pessimism seen at the beginning of the week, all against the backdrop of unclear risk appetite trends and higher US yields.

Indeed, US yields in the belly of the curve regain some traction and flirt with the 1.64% area as opposed by the poor performance of yields in the German 10y Bunds, which recede to the -0.12% area so far on Tuesday.

While the greenback loses ground vs. rivals like the sterling, the yen and the Aussie dollar, it so far manages well to keep daily gains vs. the single currency.

Tuesday’s empty docket in the euro area will likely shift the attention to the participation of ECB Board member A.Enria in a panel discussion later in the European afternoon. The US calendar looks quite interesting following the releases of house prices tracked by the FHFA Index and the S&P/Case-Shiller Index seconded by New Home Sales and the October Consumer Confidence measured by the Conference Board.

What to look for around EUR

The bull run in EUR/USD still remains capped by the 1.1670 region (October 19). While the improvement in the sentiment surrounding the risk complex lent extra wings to the par in past sessions, price action is expected to keep looking to dollar dynamics for the time being, where tapering chatter remains well in centre stage. In the meantime, the idea that elevated inflation could last longer coupled with the loss of momentum in the economic recovery in the region, as per some weakness observed in key fundamentals, are seen pouring cold water over investors’ optimism as well as bullish attempts in the European currency.

Key events in the euro area this week: German GfK Consumer Confidence (Wednesday) – German labour market report, EMU final Consumer Confidence, ECB meeting, German flash CPI (Thursday) – Advanced German Q3 GDP, flash EMU CPI (Friday).

Eminent issues on the back boiler: Asymmetric economic recovery post-pandemic in the region. Sustainability of the pick-up in inflation figures. Probable political effervescence around the EU Recovery Fund in light of the rising conflict between the EU, Poland and Hungary. ECB tapering speculations.

EUR/USD levels to watch

So far, spot is gaining 0.02% at 1.1609 and faces the next up barrier at 1.1669 (monthly high Oct.19) followed by 1.1704 (55-day SMA) and finally 1.1755 (weekly high Sep.22). On the other hand, a break below 1.1590 (weekly low Oct.25) would target 1.1571 (low Oct.18) en route to 1.1524 (2021 low Oct.12).

  • NZD/SUD struggled to capitalize on its modest intraday uptick amid stronger USD.
  • Hawkish Fed expectations acted as a tailwind for the buck and exerted pressure.
  • Rising bets for an additional RBNZ rate hike warrants caution for bearish traders.

The NZD/USD pair surrendered its modest intraday gains and retreated to the lower end of its daily trading range during the early European session. The pair was last seen hovering just above mid-0.7100s, nearly unchanged for the day.

The pair gained some traction during the early part of the trading action on Tuesday amid the dominant risk-on mood in the markets, which tends to benefit the perceived riskier kiwi. That said, the ongoing US dollar recovery from one-month lows capped the upside for the NZD/USD pair, rather prompted fresh selling at higher levels.

The USD continued drawing some support from growing acceptance about the prospects for an early policy tightening by the Fed. The market expectations were reaffirmed by Fed Chair Jerome Powell on Friday, saying that the US central bank will begin rolling back its massive pandemic-era stimulus by the end of this year.

Moreover, investors have been pricing in the possibility of a potential interest rate hike in 2022 amid worries that the recent widespread rally in commodity prices will stoke inflation. This was reinforced by the recent runaway rally in the US Treasury bond yields, which continued acting as a tailwind for the greenback.

The downside, however, remains cushioned amid rising bets that the RBNZ will hike interest rates further to contain stubbornly high inflation. This warrants some caution for aggressive bearish traders and makes it prudent to wait for a strong follow-through selling before positioning for any further depreciating move.

Market participants now look forward to the US economic docket – featuring the releases of the Conference Board’s Confidence Index, Richmond Manufacturing Index and New Home Sales. This, along with the US bond yields and the broader market risk sentiment, will influence the USD price dynamics and provide some impetus to the NZD/USD pair.

Technical levels to watch

 

USD/MXN has pulled back towards the 200-day moving average (DMA) today seen at 20.1780. Nonetheless, economists at Société Générale expect the pair to stage a rebound towards 20.50, then the recent high of 20.90.

Bounce expected

“A large decline is not envisaged; recent trough at 19.85 and 19.60/19.53 are near term supports.”

“The pair looks poised to head higher towards 20.50 and recent peak at 20.90.”

 

USD/INR has retracted after hitting the upper band of recent consolidation zone at 75.55/75.70. Although this level remains an interim hurdle, economists at Société Générale expect the pair to lurch higher towards 76.40 and last year’s high of 77.00.

Ascending trend line at 74.20 provides support

“Ascending trend line at 74.20 should provide support.”

“The up move could persist towards 76.40 and last year’s high of 77.00.”

 

EUR/USD is struggling to hold 1.16. Economists at Société Générale note that the pair needs to stay above the 1.1570 level to see further gains.

Break above 1.1730/1.1750 resistance zone to open up 1.1910

“Reclaiming multi month channel at 1.1730/1.1750 will be essential for extended rebound towards 1.1910.”

“First support is at 1.1570.”

 

USD/CNH has consistently struggled to reclaim the 200-day moving average (DMA) at 6.47 which has resulted in retraction of all the gains since May. Economists at Société Générale expect the pair to suffer a deep fall on a break below the 6.35 key support.

USD/CNH to stage a meaningful uptrend above the 200-DMA at 6.4650/6.4700 

“The low formed earlier this year near 6.3500 remains a crucial support.”

“An initial rebound can’t be ruled out towards daily Kijun line at 6.4250.” “Reclaiming the 200-DMA at 6.4650/6.4700 is critical for a meaningful uptrend.”

“In the event the pair breaks below 6.3500, next potential support levels could be at projections of 6.3200 and 6.2940.”