Weekly Outlook-Economic Data And Corona virus In Focus

Weekly Outlook-Economic Data And Corona virus In Focus

09 May 2021 12:45 PM

Weekly Outlook 10th May to 14th May 2021

USDINR: USD/INR strengthened from 74.06 a week earlier to 73.51 on Friday. Rupee posted its largest single day gain in over a week on Friday.  The increasing number of corona-virus cases and state lockdowns getting imposed in different parts of the country is still a worry. Investors are cautious as there is uncertainty about a national lockdown in the country to control the spread of the virus.

It is a relatively busy week for the rupee in the economic calendar. The week starts with CPI numbers and industrial production. Later in the week, WPI numbers are due out which will be the key area of focus.

On the other hand, It is a relatively silent week for dollar in the economic calendar. It starts with JOLTs job openings for March. It is followed by CPI numbers for April and this will be a key area of focus. It is expected to remain unchanged at 0.3%. Followed by CPI is crude oil inventories which are due out on the same day. On Thursday we have the weekly initial jobless claims numbers due out which is expected to increase slightly compared to the previous week. Producers price index is also due out on the same day and this can be taken as a leading indicator of the overall inflation in the country. The week ends with retail sales numbers for April  and help determine the level of consumer spending in the economy.

USDINR Tech: In addition to the up-gaps formed earlier: 72.52 – 72.76 (purple horizontal lines) and at 73.43 – 73.51 (blue horizontal lines) – this price gap was partially closed on 7th May when USDINR declined to an intra-day low of 73.4975, a new down-gap has been formed at 74.29 – 74.23 (yellow horizontal lines).

Exporters should increase their hedge ratios on any rupee move towards 74.30 – 74.50 – these hedges have worked out very well. USDINR forward premiums are still high at 4.8 – 5.2% annualized and forward rates are quite attractive to receive. Importers can start hedging for immediate term (1 week) at spot around 74 figure and increase hedge ratios for up to 3-4 weeks on any move towards 73.40 – 73.50 – time to hedge for importers at any spot target around 73.00 – 73.30. Exporters and importers should explore vanilla options to diversify risk – options volatility is reasonable and option premium costs are not high.

There is one price gap that is unfilled yet, the one at 72.52 – 72.76 (purple horizontal lines): technically suggesting a move towards those levels. Having seen levels above 74.50 – 75.00, my recommendation to importers would be to start hedging at 73.00 – 73.30 for short term. If rupee gains further to close the purple horizontal lines, certainly hedge for 1 – 2 months.

EURUSD:  It was a positive week for EUR/USD where it gained significantly and crossed the 1.2100 hurdle as disappointing US Nonfarm Payrolls  data was out on Friday. The euro is also getting a boost as European Union is reopening from lockdowns.

It is a relatively quiet week for Euro in the economic calendar. The week starts with Eurozone and German ZEW sentiment which will help determine the level of optimism in the economy. German CPI numbers are due out in the middle of the week followed by Eurozone Industrial Production numbers on the same day. The ECB Monetary Policy at the end of the week will be the key area of focus. The monetary policy statement contains the result of ECB’s decision on asset purchases and the economic conditions that influenced this decision.

EURUSD Tech: EURUSD rallied this week after having its biggest fall last week. The euro initially came down 1.20 but managed to go high as 1.2171 on the last trading day as the dollar weakened after poor NFP data. If euro continues to strengthen we can see levels like 1.23 in the coming week. If it falls below 1.20, it might go down towards 1.18. It is currently trading above its 50 week SMA suggesting a bullish trend in the pair. It might face resistance towards 1.22.

GBPUSD: The pair rallied 1.06% this week supported by better than expected British data and especially after the jobs number in the U.S. came out much weaker than anticipated. Falling U.S. Treasury Yields also provided some boost to the sterling. The Bank of England has suggested in the last few days that they are looking to taper off on purchases in the bond market, which may also provide strength to the pair. On the economic calendar, the week begins with the speech of BoE Governor Andrew Bailey on Tuesday. On Wednesday, GDP (YoY) and (QoQ) for Q1 is due out. Market participants are expecting it to be better than anticipated, indicating some optimism in the economy. Later in the day investors will keep an eye on Manufacturing Production figures which depicts total inflation adjusted value of output produced. A higher than expected reading should be bullish for the British Pound. Going ahead, Trade balance and Trade balance Non-EU for the month of March is due out.

GBPUSD Tech: The pair traded with an uptrend this week. The last candle stick was very bullish with a high of 1.4005. 50 day SMA is suggesting some bullish trend but breaking the 1.401 level seems difficult, as earlier there were many attempts to break through it. If it breaks these levels, we might look for a move to 1.42 levels. On the downside, the immediate support lies at 1.38 level then at 1.376.

USDJPY: The pair saw a downtrend this week. It went as low as 108.32. The pair pulled back in the last trading session on Friday, due to weaker job figures in America. Retreating U.S. treasury yields further weakened the pair. The Japanese Services PMI figures, which improved to 49.5 from 48.3 previously, and the Monetary Base for the same month increased by 24.3%. On the economic calendar, the week starts with household spending for the month of March. A better than expected reading should be taken positive for the Japanese Yen. Later in the day, the 10-Year JGB Auction is due, Market participants monitor these rates very closely. On Wednesday, Foreign Reserves (USD) for the month of April is due. Previously the reserves fell from 1,379.4B to 1,368.5B.

USDJPY Tech: On May 3rd the pair made a spinning top candlestick indicating indecision in the markets. Supporting the spinning top candle the following three candlesticks were small (showing indecision) but on the last trading session, the candlestick was very bearish due to weaker U.S. job data. The 50-day SMA is suggesting a bearish move in the pair. If the pair breaks the support level of 108.30, the pair might see support at 107.45. On the upside, 109.80 is the resistance region, but currently it seems unlikely to get there.