USD/INR – The Indian rupee opened lower against the dollar after Brent crude oil reached the highest in two weeks. Losses in most of its Asian peers are further expected to hurt demand for the local currency. The rupee opened at 71.36 versus its previous close of 71.18. With U.S. markets closed on Monday, there will be no demand for cash dollar. The risks are weighed more towards the downside on the rupee, and a test of the 72 level, the last month’s closing high, is likely in the coming days amid dwindling portfolio flows, advance in crude oil prices, and the rebounding dollar index. Next week’s Federal Reserve’s policy review is the one thing that may provide relief to the rupee and help dissolve the immediate downtrend. “If the Fed continues its recent dovish rhetoric, emerging market currencies will be the major beneficiaries.
EUR/USD – EUR/USD slipped to its lowest in two weeks and will face mounting risks of more losses as next week’s ECB meeting approaches The Bank of Italy today lowered its 2019 GDP forecast to 0.6 percent from December’s 1.0 forecast and said that Italy probably contracted in Q4 2018 for the second straight quarter. That suggests Italy is technically in recession. The Italy news adds to concerns about slowing growth in Germany, the euro zone’s largest economy, and therefore about the block as a whole. The market remains reluctant to commit to a heavy EUR/USD slide that could break it out of well-defined ranges, even in the face of risks to growth, political uncertainty, a potentially dovish ECB and potentially adverse Brexit effects. EUR/USD was last trading at 1.1374.
GBP/USD – Sterling is likely to remain resilient following its Jan 3 flash crash low of 1.2409, as the only consensus in the UK parliament is that a no-deal Brexit must be avoided. PM May is expected to announce her ‘plan B’ in parliament today, which could be followed by more amendments this week that may further reduce the chances of a hard Brexit. The push for a second referendum has eased, with little weekend press coverage, and now prices it back to 7/4 against, from 7/5 last week Key GBP/USD levels are Tuesday’s 1.2670 low and 1.3086/89, 76.4 percent of the September-January fall and the 200 DMA, which has capped the pair since May. GBP/USD was last trading at 1.2860.
USD/JPY – Bulls picked up the baton in NY and took the price off the aforementioned highs before drifting into a North American close of 109.69. With mixed earnings reports, the stock markets took bullish cues from geopolitical and domestic political news instead. The U.S. government’s partial shutdown was in its 28th day on Friday and investors are fretting over the ramifications for the US economy that a prolonged political standoff could damage. USD/JPY and other yen pairings are rallying on hopes that U.S.-China trade talks could be gearing up for a break-through, markets will need to verify the progress before the gains become sustainable. If U.S. offers to reduce or eliminate tariffs on Chinese goods as part of an agreement, markets would view that as clear progress and risk-on. If a “trust but verify” deal is reached, it would give equities and Trump a win amid a government shutdown and a divided Congress. Of course, offering to drop punishing tariffs after a deal may not be enough to produce an agreement.
Important data releases on 21-01-2019