Overnight Risk Aversion Strengthens Dollar

The rupee ended 0.34 percent lower on Thursday at 53.41 per dollar. Pair was mostly trading flat around 53.00 levels during Asian and European session. However a sudden decline in rupee was observed during the last few minutes of trading session. Traders cited an increase in demand for dollars from oil companies. At the same time some stop losses were triggered around 53.20 sending the pair higher towards 53.50 levels.

Traders said dollar selling by custodian banks looking to invest in shares seen during the day had helped match the dollar demand from oil firms, but post the stock market close, oil demand pushed the rupee lower. We expect the USD/INR pair to trade in range of 53.20 to 5360 today. Till the October 30th RBI meeting, the dollar is expected to remain strong as US economy posts better than expected data while market is split over a RBI policy rate cut possibility. An overnight strength in the dollar due to risk aversion is likely to weaken the rupee further today.

EUR/USD: The euro fell for the first day in three against the US dollar, declining 0.3 per cent. Markets are not sure what to expect from Spain but it will be disastrous for the euro if Spain does not officially request assistance. Falling Spanish bond yields this week, amid good demand at their debt auctions, hint that Spanish officials may not be in a hurry to seek financial assistance from the EU. A slew of economic indicators from China released earlier today have bolstered optimism, subsiding worries over economic growth.

Meanwhile US dollar enjoys reprieve as risk sentiment wanes. Consolidating behavior seen across risk assets was amplified by softer U.S equities which focused on corporate earnings and a rise in the weekly jobless claims. The number of U.S citizens filing for unemployment benefits rose more than forecast to 388,000 for the week ending October 13.

However, stronger than expected manufacturing data was a concession, with the Philly-Fed index returning to growth in October. The US leading index, which is a index of a broad range of indicators, pointed to stronger growth in the month of September. Markets today will focus on the Euro Summit as no major data is due for release out of eurozone. EUR/USD is likely to end the week around 1.31 levels.

GBP/USD: The GBP/USD is back below 1.61 levels during overnight trade as risk sentiment deteriorated. UK continued the release of upbeat data as retail sales rebounded strongly in September, lifted up by the rise in sales of winter clothing and school uniforms, as the drop in inflation and unemployment offset the weak consumer spending. Retail sales with auto fuel for the month of September showed 0.6% advance, compared to both revised and expected readings of -0.1% and 0.4% respectively, where the annual reading edged up 2.7% from a revised of 2.5%.

It seems that the retail sales benefited from drop in inflation and unemployment, according to data released this week. With the latest string of better than expected, BOE may not go for fresh round of QE in November which is the pound supportive. Outlook for the pound stays positive. The UK Public finances data is due for release today. Increase in borrowing will see the pound declining against the dollar and vice versa. GBP/USD has immediate support of 1.6020 while resistance comes around 1.61.

USD/JPY: USD/JPY is trading higher at 79.36 in early Asian trade. Pair failed to sustain above 200 SMA levels of 79.47. With jobs, housing, manufacturing and consumer confidence all reporting in positive modes, the US recovery seems to be back underway, easing the need for additional stimulus. The opposite is happening in Japan. Prime Minister Noda has ordered the Minister of Finance to develop a stimulus package no later than the November meeting of the BOJ. Pair is likely to end the week higher above 79 levels.