Indian Rupee Falls From Six-Week High On Tuesday

USD/INR fell from one-and-half month high hit early in the session to close down on Tuesday. On Monday the break of 54.20 triggered stop-losses which led to sharp depreciation of Rupee. However, yesterday, the dollar weakened as voting for US elections was scheduled to begin.

Yesterday the break of 54.20 triggered stop-losses. Dollar sales from custodian banks were also seen. As of today, USD/INR will trade sideways in range of 53.10-53.60. Volatility may increase once numbers start coming in on US elections. Pair is expected to open flat as EUR/USD is back to its yesterday’s level of 1.2790.

EUR/USD: The EUR/USD added a few pips on Tuesday to trade at 1.2810 but there was no real story. German factory orders tumbled today, but the bounce in the euro, was simply market sentiment before US election results start to pour in. Once numbers start supporting one or the other candidate, markets will become volatile, however once the knee-jerk election reaction passes, expect the tone towards euro to turn bearish again.

The intensity over the escalation of both political and funding problems for Greece is concerning and should limit euro rallies. Apart from the insights on US elections, German Industrial Production data will be watched out by markets. Given the notable weakness in euro area’s strongest economy in recent months, markets will be hoping for some signs of strength. A poor data will weigh negatively on euro. Eurozone retail sales too will create some volatility. We expect the pair to trade in a range of 1.2830 – 1.2750.

GBP/USD: GBP/USD was hit with a steady flow of negative eco data, as the Halifax House Index declined below expectations followed by industrial production and manufacturing both month over month and year over year tumbled below expectations. Even in late afternoon as traders pushed down the US dollar and commodities soared ahead of US elections, the pound could not get a leg up. While markets will now look to Thursday’s BoE for domestically driven movement, expect the GBP to trade on broader market sentiment given the near-term, two-way risk arising from US politics.

The outlook for BoE policy remains supportive of the GBP, however the recent disappointment in PMIs and now IP may add to a renewed desire for measures to ease the burden of ongoing structural adjustment. We expect the pair to trade in a range of 1.5960 – 1.6030. As again the pair may witness volatility once US election numbers start flowing in.

USD/JPY: JPY picked up momentum on the shift to safety ahead of US Presidential elections and ongoing worries over Spain and Greece. Safe haven flows are driving most of the strength, however these are somewhat offset by expectations for BoJ policy, as comments from government officials are considered in light of last week’s commitment to coordinated action in the face of persistent deflation.

Both Economy Minister Maehara and Vice Finance Minister Takemasa have mentioned the joint statement issued following the most recent BoJ meeting, and have put the onus on the BoJ to pursue powerful easing. BoJ Governor Shirakawa has also spoken, however his comments were directed toward immediate global concerns in the US and Europe, and thus less relevant to monetary policy. Pair is expected to trade in a narrow range around 80.30 – 80.40 levels.