Currencies Ahead Of US Elections

USD/INR ended 1.49% higher on Monday at 54.60. The rupee was weakened following a contraction in October Service PMI. Fall in EUR/USD pair during European session further pressurized the rupee. Moreover markets were in a risk aversion mode prior to US elections. The rate of PMI expansion was slowest in 11 months. An important point in the report highlights that input cost inflation in the Indian private sector persisted in October, marking a 43-month sequence of rising costs.

The rate of Inflation in service sector was sharp, and quickest in 4-months. Input prices were higher in manufacturing too. The rising trend supports RBI’s case of not wanting to cut rates. Going forward, higher inflation will continue to weigh on the rupee. As of today no major action is expected as markets will remain cautious ahead of US elections. USD/INR is expected to trade in a range of 54.20 to 54.70.

EUR/USD: EUR/USD pair extended its losses falling to 1.2769 on Monday as risk aversion took control of markets ahead of US presidential elections. Uncertainties in Greece also weighed down on euro. Greek Prime Minister Samaras will try to push the EUR 13.5b austerity package through parliament but it's reported that he might struggle to get it approved in a vote on Wednesday.

The approvals of austerity and 2013 budget are crucial in securing the EUR 31.5b tranche of bailout fund for EU/IMF. Samaras pledged that will be the "last cuts in wages and pensions". Meanwhile Eurozone Sentix Investor confidence for November rose slightly to -18.8 from the previous reading of -22.2. However, the reading is well below 0 and thus indicates pessimism.

EUR/USD pair is expected to remain under pressure today. We expect the pair to trade in a range of 1.2830 to 1.27. Eurozone Composite PMI and German Services PMI for October will be released today. We do not expect any major movement on release of these data.

GBP/USD: The GBP/USD is trading at 1.5973 plunging 51 pips today as the US dollar gained momentum ahead of the BOE meeting. Sterling is weak, down 0.3% and trading in sympathy with EUR for the second consecutive session. A weaker services PMI has also added to the decline, as the index fell to 50.6 from 52.2 vs. expectations of 52.0. GBP has broken 1.60 and is trading at the lower end of its recent range ahead of important domestic and external events that include the US elections. We expect the pair to trade in a range of 1.5950 – 1.6030. Continued weakness in EUR/USD pair will drag down GBP/USD as well.

USD/JPY: USD/JPY is trading at 80.22 in early Asian trade. Yen is benefiting most today on risk aversion. Investors remain cautious ahead of US presidential election and lightened position in risk markets, triggering some pull back in global stocks. On the other hand Treasury 10-year notes rose for a second day as Americans prepared to choose a president with polls showing a close election that boosted demand for the perceived safety of U.S. government securities. USD/JPY is expected to trade in a narrow range around 80.40 levels today. A risk off sentiment might lead to some correction in the pair.

Latest CFTC data showed that euro net shorts were relatively unchanged at 58.2k contracts on October 30, comparing to prior week's 55.2k. Sharp deterioration was seen in yen sentiments as net shorts rose further to 37.0k, which compares to 29.3k net works back on October 2. Sterling net longs rose slightly to 23.4k comparing to prior week's 18