USD/INR – The Indian rupee opened higher against the dollar after the Reserve Bank of India eased rules for companies’ overseas borrowing. Tepid regional cues, however, will likely keep the currency’s advance in check. The rupee opened at 71.15 versus its previous close of 71.24. The further simplification of the external commercial borrowing (ECB) rules by the RBI will encourage more foreign fund flows over a period of time, but will not have much of an immediate impact on the rupee by itself. The one-month NDF were almost little changed following the ECB news. The marginal dip at the opening is probably “more a function of rupee consolidating” after having declined by two rupees from the recent high.
EUR/USD – EUR/USD has extended its short-term slide after Draghi’s dovish lean yesterday but new long-term lows are unlikely. Broad based dollar buying, Brexit issues and wider German-U.S. yield spreads all partnered with falling RSIs to drive EUR/USD below the 55-DMA today, but lack of conviction among bears limited the follow-through. EUR/USD has displayed impressive resiliency in the face of growing downside risks such as slower euro area growth, lack of Bund yield gains, the lingering Brexit process and a more cautious ECB. One factor helping the euro is potential diverging Fed and ECB rate paths. Eurodollar, fed funds and Euribor futures suggest the Fed and ECB will be on hold for 2019 but 2020 pricing shows Fed cuts and ECB hikes. Long-dollar positions could be another factor as reductions of those longs should persist as investors look for alternatives for returns. EUR/USD should be buoyed while position reduction persists. EUR/USD might trade heavy in the short-term but as long as it remains above 1.1200 the longer-term outlook is likely bullish. EUR/USD was last trading at 1.1390.
GBP/USD – The pound held on to the day’s gains on Wednesday, trading just off two-month highs against the euro as British Prime Minister Theresa May saw off a no-confidence vote, a day after lawmakers defeated her Brexit divorce deal. May survived the motion after securing the backing of her own party’s rebels and Northern Irish allies, but must now try to find a consensus with other lawmakers over how to proceed with Brexit. She proposed immediate talks with other party leaders. Against the dollar it was a shade firmer at $1.2880, compared to around $1.2860 before the vote. It had hit a two-month high on Monday at $1.2930.
USD/JPY – Diminished risk aversion is providing rays of hope to USD/JPY, but plenty of clouds remain in on its horizon. Ebbing fear of Fed over-tightening more aggressive Chinese monetary stimulus and seemingly less Brexit apprehension are helping investors’ mood. Risk-sensitive USD/JPY is also supported by its rising daily tenkan line at 108.30 and is pressing up against the kijun, Jan 8 recovery high and 50 percent Fib of the 114.21-104.10 November-January drop at 108.90. A close above 109.15 would put offers by 110 into play. Mildy rising Treasury yields are supporting the dollar, as is the elimination of fed funds bets on a 2019 rate cut. However, 16bp of easing remains priced in for 2020. Though less than the quarter point seen on Jan 3’s USD/JPY flash-crash day close it suggests longer-term downside risk for the overvalued USD/JPY. USD/JPY was last trading at 109.00.
Currency range for today
|17-Jan||3.30 PM||EUR||CPI (YoY) (Dec)||–||1.6%||1.6%|
|17-Jan||7.00 PM||USD||Building Permits (Dec)||–||1.290M||1.328M|
|17-Jan||7.00 PM||USD||Philadelphia Fed Manufacturing Index (Jan)||–||9.7||9.4|
|17-Jan||7.00 PM||USD||New Home Sales||–||569K||544K|