Weekly Outlook-Economic Data & Dollar Index In Focus

Weekly Outlook-Economic Data & Dollar Index In Focus

20 Jun 2021 11:19 AM

Weekly Outlook 21-25th June 2021

USDINR: The Indian Rupee fell 1.1% this week and closed at 73.86/73.87. The rupee was under pressure this week following a climb in the dollar index above 92 levels after the Fed meeting. Fed kept the interest rates unchanged and said it would continue its $120 billion monthly bond purchases. However, they increased its interest-rate projection in 2023 to 0.6% from its previous projection of 0.1% in March meeting.

It is a quiet week for the Rupee in the economic calendar. FX Reserves, USD is due out on Friday. On the other hand, it is a busy week for the dollar. It starts with existing home sales for May. Federal Reserve Chair Powell is expected to testify on the economic outlook and recent monetary policy later in the evening.  It is followed by current account balance for Q1 where we might see the deficit increasing from 188.5B to 207B. Later in the evening, PMI numbers for the month of June and crude oil inventories are due out.  Core durable goods, GDP (QoQ) for the first quarter and Initial Jobless claims will be the key drivers on Thursday. GDP is expected to increase to 6.4% from 4.3% in the previous quarter. The week ends with PCE price index and Michigan consumer sentiments and expectations for June.

USDINR Tech: USD/INR plunged from 73.25 to 74.25 in two working days. On Wednesday, the pair opened with an up-gap from 73.38 to 73.56 (observe the red horizontal lines). As we have seen multiple times in the past, these price gaps on the daily chart usually fill up. 50% Fibonacci retracement of the rupee rally from 75.31 to 72.31 comes at 73.81 while the 61.8% Fibonacci retracement comes at 74.17. This tends to suggest a dollar resistance region of 73.81 – 74.17. Couple of momentum indicators (RSI and Slow Stochastics) are reaching their overbought territory while MACD is broadly neutral. Dollar exporters can start selling forward dollars on any spot above 74 figure. Medium/long term forward premiums are more than 4.2% and one should capitalize on that. Do more of forwards and some vanilla options to diversify risk. Dollar importers, if mandated to hedge, can choose vanilla options over simple forwards.

EURUSD: EURUSD ended the week on a lower note. The currency depreciated as low as 1.1845 and ended at 1.1860. The pair traded weaker after the fed surprised market participants with hawkish comments to its policy, where the bank signalled tapering bond buys and raising rates sooner than anticipated.
On the economic calendar, it is a quiet week ahead for euro. On Monday, ECB President Lagarde is scheduled to speak. On Wednesday, German manufacturing PMI for the month of June. It is expected to decrease from 64.4 to 63.4, which may weigh on the pair. Later in the day, German services PMI, manufacturing PMI and services PMI data is due. Going ahead, on Thursday, German IFO business climate index for June is due. A reading higher than expected should support euro.

EURUSD Tech: EUR/USD ended the week 2.05% lower and consistently formed lower lows. The pair is trading below its short-term as well as long-term SMAs. A likely bearish crossover of the 14-day SMA and 89-day SMA might signal further downside for Euro. It is also evident from the “Three black crows” pattern formed during the last 3 working days, signaling a reversal of bullish trend. Momentum indicators have entered the negative territory with MACD below zero-line and RSI entering the oversold region. On the upside, the pair may face some resistance at 1.1995 followed by 1.2050 – 1.2060. Some support lies at 1.1860 followed by 1.1838-1.1790 region. If the pair breaks below 1.1790, we might see a drop towards 1.1700.

GBPUSD: GBPUSD ended 0.2% weaker this week. The pair saw a high of 1.4132 but ended lower at 1.3809. Hawkish comments from U.S. Fed on interest rate projections pulled down sterling and the pair went as low as 1.390.Brexit tensions between the EU and UK over Northern Ireland protocol and disappointing U.K. retail sales data continue to weigh on pound.
On the economic calendar, it is a relatively quiet week for the sterling. The week starts with composite PMI, manufacturing PMI and sales PMI numbers due on Wednesday. A better than expected number should provide support to the pound. On Thursday, BoE interest rate decision for the month of June is expected to remain unchanged at 0.10%. Later in the day, BoE MPC meeting is scheduled. Market participants will focus on bank’s decision on whether they would withdraw some of the stimulus anytime soon. Apart from this, increase in the number of people fully vaccinated may provide some strength to GBPUSD.

GBPUSD Tech: The Pound depreciated 0.2% this week. On Friday, the pair hit over a 2-month low of 1.3790 and ended at 1.3809. The momentum indicators are edging towards the oversold zone but there is still room for further depreciation in the sterling. If the pair opens below its closing level, it might see a support level at 1.3670, which is where the double bottom formed (25 Mar and 12 Apr). A break below this level would lead to a free fall in the pair. If GBPUSD appreciates, the immediate resistance lies at 1.3825, followed by 1.40 and 1.42.

USDJPY: It was a very volatile week for the pair. The dollar index jumped after the Fed indicated that they could increase interest rates sooner than expected, which pushed the Yen to 110.83 level, very close to its high of 110.96 this year. Bank of Japan also had its monetary policy meeting on Friday where it kept its super easy monetary policy unchanged. They have extended the special Covid-19 program till March 2022 and have left the interest rates negative and would continue with their quantitative easing program.

It is a relatively quiet week for Yen in the economic calendar. The week starts with BoJ core CPI.  Wednesday is a busy day in the economic calendar.  It starts with monetary policy meeting minutes. It is followed by manufacturing and services PMI for the month of June. Japan’s leading index, a composite index based on 12 indicators, will help predict the future direction of the economy. Later in the week CPI numbers were Tokyo are due out. Tokyo core CPI is expected to increase by 0.1%.

USDJPY Tech:USDJPY continued to appreciate this week. The pair ended stronger this week at 110.19 compared to 109.65 previous week’s close. We can see a double top formation at 110.60-110.80 levels on 17th June suggesting that there might be reversal in the trend from these levels. This is further evident if we look at the MACD chart, where the momentum indicators are not confirming with the direction of the price movement. If the pair weakens, 109.17 might act as support. However, if the pair breaks the double top, we might see a significant up move in the pair. Immediate resistance lies at 111.70 followed by 112.