Weekly Outlook-Economic Data And Covid-19 In Focus

Weekly Outlook-Economic Data And Covid-19 In Focus

02 May 2021 11:06 AM

Weekly Outlook 3rd May to 7th May 2021

USDINR: USD/INR traded weaker for most of the week due to the recent wave of covid-19 but, changed its trend after the US Federal Reserve kept its monetary policy unchanged despite robust economic data from the US. The week starts with Manufacturing PMI figures due out on Monday followed by Services PMI due on Wednesday. PMI numbers are expected to show that the economic activity declined in India in the month of April due to the surging coronavirus cases. PMI figures are also due out of the US with Manufacturing due on Monday and services PMI on Wednesday.  Although, with the progress in the US’s vaccine rollout and fiscal stimulus, the economic activity is expected to increase and give a further boost to the risk appetite. The key driver for the week is expected to be the Non-farm payrolls data due in the second half of the week. Jobs data is expected to show a recovery in the US labour market. Going ahead, we expect the pair to cool down a bit as lot of negative sentiment may have already been priced in the markets and India opens its vaccine drive for people above 18 years, starting from May 1. It may also receive a boost from the upbeat US economic data uplifting the risk appetite.

USDINR Tech:  In the last two working days, rupee made two attempts towards 73.9425 - 73.9625 but ultimately closed the week at 74.06. This tends to suggest an important short term USDINR support around 73.9425 - 73.9625 (green dashed line). In addition to the up-gaps formed earlier: 72.52 – 72.76 (purple horizontal lines) and at 73.43 – 73.51 (blue horizontal lines), a new down-gap has been formed at 74.29 – 74.23 (yellow horizontal lines). The new down-gap co-insides with the neckline at 74.26 of the double top of 75.31 – 75.32 (https://www.myforexeye.com/usdinr-ideas--double-top-formation--24apr21). Good probability of a USDINR move towards 74.20 – 74.40 to close the down gap and also as a counter reactive move to rupee’s continuous gain from 75.32. Since the up-gaps are unfilled too, there could be a move towards 73.40 – 73.50 as well. Expect volatility to continue in May.

USDINR levels of 75.31 – 75.32 (red dashed line) has been attempted twice but not broken – establishing as a critical resistance area for the medium term.

Exporters should increase their hedge ratios on any rupee move towards 74.30 – 74.50. USDINR forward premiums are still high at 4.8 – 5.2% annualized and forward rates are quite attractive to receive.

EURUSD: EURUSD initially rallied last week but fell sharply on Friday, posting its biggest daily drop in one year. Eurozone GDP figures were released on Friday where we saw the GDP contract by 0.6% (QoQ). It is the second quarter where the GDP has contracted. The unemployment rate was better than expected but had a muted impact. The fall might be because of portfolio managers adjusting their portfolios or simply the sense that market had overreached its comfort zone. The week starts with PMI numbers out of Eurozone and Germany followed by German factory orders and Eurozone retail sales. Later in the week, ECB economic bulletin is due which will help policymakers in setting interest rates and evaluate the future economic conditions. We also have the German factory orders and Eurozone retail sales for march due out on the same day. The week ends with German trade balance and industrial production for march.

EURUSD Tech:  EURUSD started on an uptrend initially during the week but turned around by the end of the week giving up all its gains. The pair has seen a big move towards the upside and a corrective move for the same is logical. At this point many traders would be on the lookout for buying the pair on drops. We should be able to find some support around the round figure of $1.20.

On the downside $1.18 is a support region which could interest traders, but currently it seems unlikely that we’ll get there. The US dollar continues to be pressured by the stimulus and the expectations of reflation, making a turnaround probable and that this market goes much higher. A look on the 4-hourly and the daily chart could indicate a good entry point as the weekly trend is still an uptrend.

GBPUSD: GBPUSD pair traded higher throughout the week but ended lower. The pair advanced in response to the Fed's dovish decision, but gains were limited. The dollar weakness allowed GBP/USD to rise, but gains were capped by Brexit issues which refuses to die. On the economic calendar, it is a relatively quiet week for pound. The week starts with Manufacturing PMI data. Market participants are expecting it to be slightly better than previous, indicating some optimism in the economy. After that Composite PMI and Services PMI for the month of April figures is due. A better than expected reading should be taken bullish for the sterling. Later in the day, market participants will focus on BoE Interest rate decision which is expected to remain same to 0.10%. In the end of the week, Construction PMI numbers is due out which indicates activity level of purchasing managers. Market participants will keep an eye on this data as it is a leading indicator of overall economic performance

GBPUSD Tech: GBP/USD traded with a bullish sentiment for most part of the week but bears took control on the last trading day. The pair formed an inverted hammer on Thursday, signalling that a change in the uptrend can be expected, also supporting the trend reversal is the bearish crossover in MACD. With the bears taking control and erasing the entire week’s gains, we expect the pair to decline further in the coming week. Immediate support lies at 1.3795 which coincides with its 89-day SMA followed by 1.3775 and 1.3665. On the upside, the pair may face some resistance at 1.3995 followed by 1.4005 which has acted as a strong resistance since mid-March.

USDJPY: Earlier this week, Bank of Japan warned of high uncertainty on the impact of pandemic on country’s growth and trimmed its core consumer inflation forecast for this year from 0.5% estimated in January to 0.1% thus continuing with the ultra-loose policy would be prudent by maintaining the massive stimulus. Dovish statement from Fed Governor made the US bond yields go higher and the emphasis on a fragile economic recovery made the dollar turn weak. On the economic calendar, it is a quite week for Yen. Japanese markets will remain close for first three days of the week. On Thursday, Monetary policy meeting is going to be held which influence the decision on where to set interest rates. Later in the day, Services PMI numbers is due out. In the end of the week, Household spending data is due out. A higher than expected reading should be taken bullish for the currency.

USDJPY Tech:The currency pair has inched higher of 109 and has gone above the 50 day moving average price. A possible head and shoulders pattern in the making? With the shoulder line marked in yellow and neckline marked in red. The shoulders in white curved lines and head in blue curved line. Given that the H&S pattern indicates a pattern reversal and retracing Fibonacci levels from low of 102.60 on Jan 5 to peak of 111 on Mar 31, the 38.2% level at 107.77 is a possible target. Conversely it easily went passed the 23.6% level – 109 on the last day of April. Next resistance is at 109.80 and then 111.

With Rupee appreciating to about 74 and Yen at around 109, JPYINR pair is just below 0.68. The chances of a volatile Rupee and an appreciating Yen may make the JPYINR pair head towards 0.70.