Currencies Flat Due To Thin Data Docket

The Indian rupee snapped two sessions of falls on Monday on the back of dollar sales, likely on behalf of foreign investors who were looking to bid at the auction of unused limits in government and corporate debt taking place later in the day. Flows and the global risk environment will likely remain the main drivers for the currency markets, with external commercial borrowings from various companies expected to hit markets in coming days and support the rupee.

The partially convertible rupee closed at 53.47/48 per dollar on Monday, stronger than 53.84/85 on Friday. In the non-deliverable forwards market, the one-month contract was at around 53.69 while the three-month was at 54.19. EUR/USD pair is more or less unchanged in overnight trade. Movements in the single currency will continue to impact the rupee. USD/INR may open down Tuesday on FII inflows as SEBI auction is likely to see good demand so sentiments remain positive. Dollar/rupee may trade in Rs 53.40-54.10/$1 range in the week to Oct 25.

EUR/USD: In a quiet trade on Monday, the EUR/USD traded slightly better after results showed that Spanish Minister Mariano Rajoy’s party hung on to power in his home region of Galica. This vote was an important test of his popularity and power as it came during a period of austerity. Many traders have been thinking that the Spanish government has been reluctant to make a formal request for financial aid from the European Central Bank because it would cause it to lose support of the people.

Although Yesterday’s vote supported EUR/USD, we may witness a sell off if Spain delays to ask for financial aid. Worries over Greece is another concerning factor. Apart from Eurozone Confidence, no other data will be released today. We expect that though the Spanish election will be supportive for Euro, hostility between Germany & UK over budget veto issue will limit EUR/USD around 1.31 levels.

GBP/USD: With no major economic events to react to on Monday, the GBP/USD followed the direction of the euro. That being said, the Sterling is trading slightly better as traders turned optimistic that Spain would be able to resolve its election issues and finally make a request for money from the ECB. The Employment, Retail Sales and PSNC Borrowing data released last week were higher than market forecasts as well as previous month’s readings.

Further supporting the pound is the semi safe haven status. Outlook for pound stays Bullish over euro. The GBP/USD pair was bogged down yesterday as Germany was set to warn UK on Europe budget veto. No major data is due out of UK today. Immediate support for the pair is 1.6 while resistance is 1.6071.

USD/JPY: USD/JPY continued its ascent on Monday clocking a 2 month high of 79.89. Moreover the pair has rose tracking the rise in US Treasury Yields. The key to watch for the JPY itself will be the next moves in US Treasury Yields. Given a recent jump in yields, the USD/JPY has rallied. Yet such an interest rate-driven move will be put to the test on the key US Federal Open Market Committee rate announcement on 24th Oct at 11.45 p.m. as per IST. Given the weakness in yen, it is much safer to sell it against euro or pound rather than USD as the USD/JPY appears to be overbought and due for correction in short-term. Immediate support for the pair is 79.44 while multiple resistances are seen around 80.00 levels.