Chinese Data And Spain Bailout Issue To Dominate Markets This Week

The dollar gained against the rupee on Friday ending the day at 51.81. Pair traded around 53.05 levels for most of the day. The IIP numbers for the month of August were ahead of estimates at 2.7%. However July IIP number was revised downwards from 0.1% to -0.2%. Though the August headline figure was more than expected, it left markets wanting for more. On the other hand, CPI for September fell to 9.73% from 10.03% due to slight fall in fuel and food prices. However RBI uses the WPI index for monitoring index as CPI was launched this year. The WPI data still remains above RBI’s comfort level.

Equity markets witnessed a fall post IIP data. The rupee on the other hand recovered its early losses in afternoon session tracking a spike in EUR/USD pair. India’s trade deficit widened to 11 month high of $18.1 billion. It is to be noted that rupee appreciating to 50 or below 50 levels will further hit exports as western economies continue to deteriorate. On the other, prices of critical imports like crude oil will stay comparatively higher due to stimulus effect of major central bankers and uncertainty in gulf region.

The pair will open lower today around 52.55 levels as risk assets will see some strength on increase in China’s trade surplus. A fall in Chinese CPI due today will further add to risk on rally Meanwhile, US consumer confidence rising to pre recession levels will support dollar.

EUR/USD
The EUR/USD remained locked in the 1.29 range trading at 1.2974. European industrial production surprised to the upside, increasing by 0.6% m/m in August after Italy (+1.7% m/m) and France (+1.5% m/m) had both reported solid jumps in output when they released their data earlier this week. German industrial output contracted by 0.4% m/m. The euro continued to move higher throughout the day, but remained well within its recent range.

Eurozone optimism picked up ahead of the weekend. While the timing of a Spanish bailout remains highly uncertain, there is growing consensus that an aid request it is more likely than not after S&P downgraded Spain’s rating on Thursday. As such a request would trigger the ECB bond buying program and lead to a further reduction in the eurozone bond yields, it could at least cause a near-term boost to the euro and most risk-sensitive assets. No major data is due for release today from eurozone. The pair is expected to trade in range of 1.2920-1.2990.

GBP/USD
The pound rose to 1.6076 after EUR/USD managed to bounce back above 1.29 levels on growing probability of Spanish bailout under ECB’s OMT plan. Coming week will see UK’s unemployment numbers and retail sales number. Jobs data last month showed somewhat improvement. Continuation of improvement in Jobs data will be supportive for the pound. However the most watched out data will come on Friday where Public Sector Net Borrowings data will be released. UK’s AAA rating is under threat owing to its growing budget deficit as pointed out by rating agencies. Meanwhile the pair is expected to trade in range of 1.6040 to 1.61 today.

USD/JPY
The USD/JPY climbed for the first time in days, as the JPY weakened against the USD. However pair once again failed to sustain above 50 SMA level of 78.42. The mood towards the yen switched completely overnight, after the initial claims and Softbank news, which at least is not a yen-buying factor. The Softbank deal is so large that currency markets could be tapped for part of the financing. The downward movement is driven by a combination of factors that include disappointing machine orders data, improved market sentiment resulting from expectations for global growth, and rumors of M&A activity. We expect the pair to remain strong today with upside capped around 78.80