Currencies To Stay Rangebound

The rupee ended 23 paisa lower on Monday at 53.01 per US dollar. Pair traded above 53 levels tracking the weakness in the EUR/USD pair. However the rupee failed to recover after initial losses even though the EUR/USD pair rebounded from lows of 1.29.

The dollar remained strong on importer demand. Meanwhile the WPI data for September came in at 7.81%, bit higher than forecast of 7.71%. The Inflation index was primarily pushed higher by rise in fuel price. On the other hand, food inflation registered a fall in September. A spike in September WPI was expected due to a fuel price hike; however negative news came in form of upward revision of July WPI to 7.52%.

The inflation number continues to remain well above RBI’s comfort level which reduces a chance of policy rate cut on October 30. Pair may open lower around 52.80 tracking overnight gains in euro-dollar pair. Brent Crude prices have moved above $115 and an improvement in US retail Sales figure would limit gains in rupee. Upside in USD/INR pair will remain capped around 53.15.

EUR/USD: The single currency recovered in overnight trade against Dollar but upside so far is capped around 1.3 levels due to uncertainty in Spain. Reuters reported that Spain is finally ready to apply for a bailout under OMT. However, Finance Minister Luis de Guindos reiterated on Saturday that it's in no hurry to seek a bailout as "there is much more optimism toward Spain than three or four months ago." On the other hand, European Central Bank council member Josef Bonnici urged that even though urgency is a being less than before, it's "wise" for Spain to explore the route of bailout and "not wait until they're tested in the markets."

The euro's recovery attempt late last week seemed to have lost momentum already and would likely stay in recent range for the early part of this week. Meanwhile the eurozone CPI and German and eurozone Zew Sentiment readings are due for release today. Markets will also focus on eurozone trade balance data. Though the headline figure will not make much of an impact on the euro-dollar pair, markets will focus on trade activity of troubled periphery nations.

Any signs of revival in their trading activity will be euro supportive. Pair is likely to trade in range of 1.2930 to 1.2980. Single currency may rally up to 1.3030 levels if Zew survey surprises markets with remarkable improvement.

GBP/USD: The pound, too, recovered against the dollar in overnight trading tracking the EUR/USD pair. Pair has been moving in a narrow range for past few trading sessions. Traders are wary that data later in the week – including inflation, jobs and retail sales figures, as well as BOE minutes – could highlight a weak UK economy and add to the risk of the BoE opting for more asset-buying quantitative easing next month.

QE is usually negative for the pound as it increases the supply of the currency. Meanwhile, the UK CPI data will be released today. Bloomberg Survey last week had highlighted heightened Inflation expectations. If CPI comes in more than expected, it will reduce the chances of QE in November. Pair however will continue to trade in its recent narrow range of 1.6020 to 1.6100.

USD/JPY: Pair for the time being has managed to sustain above 50 SMA level of 78.42 after clocking a high of 78.84 in early Asian trade. The yen is the notably weakest currency today while most pairs are stuck in familiar range. The yen's weakness could be attributed to risk appetite as M&A deals lifted European equity indices. Meanwhile, there are intensified speculations of intervention as the new Japanese Finance Minister Jojima said that France is positive to Japan's buying of ESM bonds. USD/JPY could have a test on 78.86 resistance and break will put focus to 79.22 resistance.