Analysts at Standard Chartered forecast another 40bps reduction in the repo rate to 4.75% by FY21 as India's MPC remains focused on growth.
"We expect a 15bps repo rate cut at the December meeting as the MPC tries to balance a sharper-than-expected growth slowdown and a temporary inflation spike near-term."
"This is likely to reflect in another downward revision of the MPC’s FY20 growth projection and an upward adjustment in its inflation forecast in December."
"While we expect a dovish stance to be maintained, indicating more cuts ahead, the MPC is likely to pause temporarily after December as it assesses the improvement in economic activity in H2-FY20 and the transmission of 135bps of rate cuts delivered to date, as the recent improvement in global sentiment gives it room for a pause."
- USD/INR is trading off the daily lows in the New York session.
- The level to beat for bears is the 71.60 level.
USD/INR daily chart
USD/INR four-hour chart
Additional key levels
An opinion poll conducted by Kantar has shown that Prime Minister Boris Johnson's Conservatives have enlarged their lead to 18 points against Labour. The ruling party receives 45% a leap of 8 points from the firm's previous poll, while Jeremy Corbyn's party holds its ground at 27%.
Nigel Farage's Brexit Party has collapsed to only 2% against 9% in Kantar's previous market research. The right-wing outfit has pulled out candidates from most constituencies, to help the Conservative Party.
Investors prefer the certainty of Johnson's Brexit deal and the Tories' more market-friendly polices against the uncertainty of a hung parliament and renegotiation of the Brexit deal. The news is positive for the pound. Sterling traders are awaiting a debate between the leaders later today.
See Johnson-Corbyn debate preview: Three scenarios for GBP/USD as the election heats up
- DXY met strong resistance around 97.90.
- US-China trade concerns weigh on global mood.
- US housing sector results came in mixed.
The greenback, in terms of the US Dollar Index (DXY), has failed to extend the daily recovery further north of the 97.90 region.
US Dollar Index hurt by trade jitters
The index could not sustain the earlier advance to the vicinity of 97.90 and sellers turned up in tandem with fresh concerns on the US-China trade war front – particularly from Chinese officials - amidst increasing scepticism on a positive outcome of the negotiations surrounding the ‘Phase One’ partial deal.
Adding downside pressure to the buck, the US housing sector printed mixed results in October, as Housing Starts expanded below consensus by 1.314M units (or 3.8%) and Building Permits surpassed estimates expanding by 1.461M units (or 5.0%).
Later in the week, the FOMC minutes should grab all the attention on Wednesday seconded by the Philly Fed manufacturing gauge on Thursday and the final November Consumer Sentiment print on Friday.
What to look for around USD
The index seems to have charted a short-term top in the 98.50 region for the time being. In the meantime, headlines from the US-China trade dispute are expected to remain as the exclusive driver when comes to price action in the global markets. Other than that, investors stay focused on the recent US results in key fundamentals amidst declining yields and the steepening of the 2y-10y yield curve seen as of late. Moving to US politics, markets keep ignoring the Trump’s impeachment developments, while the impact on the FX space remains muted. On the broader view, however, the outlook on the greenback still looks constructive on the back of the Fed’s ‘wait-and-see’ mode vs. the dovish stance from its G10 peers, the dollar’s safe haven appeal and the status of ‘global reserve currency’.
US Dollar Index relevant levels
At the moment, the pair is losing 0.01% at 97.82 and faces immediate contention at 97.68 (monthly low Nov.18) seconded by 97.55 (200-day SMA) and finally 97.11 (monthly low Nov.1). On the flip side, a breakout of 98.45 (monthly high Nov.13) would open the door to 99.25 (high Oct.8) and then 99.67 (2019 high Oct.1).
- Technology shares capitalize on upbeat market mood on Tuesday.
- Defensive sectors stay in negative territory in early trade.
Wall Street's main indexes started the day in the positive territory on Tuesday on the back of an improved market sentiment despite a lack of positive developments on the United States (US)-China trade conflict. As of writing, the Dow Jones Industrial Average and the S&P 500 were both up 0.1% on the day while the Nasdaq Composite was adding 0.3%.
Among the 11-major S&P 500 sectors, the risk-sensitive Technology Index is adding around 0.4% to lead the winners in the early trade. On the other hand, the defensive Real Estate and Utilities indexes trade in red to confirm the upbeat market mood.
There won't be any macroeconomic data releases from the US on Tuesday that could impact stock markets' action and investors will be awaiting fresh trade war headlines.
- Improving global risk sentiment helped the pair to regain traction on Tuesday.
- Bulls are likely to wait for a sustained move beyond 0.6840 confluence region.
The AUD/USD pair built on its goodish intraday positive move and is currently placed at three-day tops, around the 0.6830 region. Improving global risk sentiment was seen as one of the key factors driving flows towards perceived riskier currencies – like the aussie – and driving the pair higher through the early North-American session on Tuesday.
The pair has now climbed back closer to a previous confluence support breakpoint, comprising of 100-day SMA and over one-month-old ascending trend-line. A sustained move back above the mentioned support-turned-resistance might be seen as a key trigger for bullish traders and set the stage for a further near-term appreciating move.
Meanwhile, technical indicators on hourly charts have been gaining positive momentum and reinforce prospects for additional gains. However, oscillators on the daily chart have failed to gain any meaningful traction and warrant some caution before placing any aggressive bullish bets amid persistent US-China trade uncertainty.
On the flip side, any meaningful pullback below the 0.6800 handle might continue to find some support near the 0.6780 region, which if broken will reaffirm last week's bearish break through the mentioned confluence support and accelerate the slide further towards challenging the 0.6700 mark with some intermediate support near the 0.6740-30 zone.
Commenting on the Federal Reserve's monetary policy actions, "This year's interest rate cuts have been very effective," said John Williams, president of the Federal Reserve Bank of New York and noted that the policy is now well-positioned.
"The US economy is in a very good place," Williams stated. "The Fed is very close to achieving the 2% inflation goal on a sustained basis."
These comments had little to no effect on the USD's market valuation. As of writing, the US Dollar Index was virtually unchanged on the day at 97.80.
- USD/CAD is choppy at the start of the New York session, holding just above the 1.3200 handle.
- The level to beat for bulls is the 1.3212/30 resistance zone.
USD/CAD daily chart
USD/CAD four-hour chart
USD/CAD 30-minute chart
Additional key levels
- EUR/USD returns to the upper end of the range near 1.1080.
- DXY recedes from tops in the vicinity of 97.90.
- US housing data came in on a mixed tone.
After bottoming out in the boundaries of 1.1060, EUR/USD has managed to regain some poise and is now testing daily highs in the 1.1080 area.
EUR/USD looks to USD for direction
The pair has returned to the positive territory on Monday after briefly testing lows in the 1.1060 region. However, a breakout of the current topside in the 1.1080/90 band remains elusive for the time being and is considered crucial in order to visit the 1.1100 neighbourhood and beyond.
On the USD-side, the pullback of the greenback from daily highs comes along another correction lower in US 10-year yields to the 1.80% area against the usual backdrop of US-China developments on the trade front. It is worth mentioning that these yields were hovering around 1.96% during last week.
In the data space and while investors wait for the ECB minutes and the speech by C.Lagarde later in the week, September’s Current Account surplus in Euroland shrunk a tad to €28.2 billion. Across the pond, Housing Starts expanded by 1.314M units (or 3.8%) during last month and Building Permits surpassed estimates expanding by 1.461M units (or 5.0%).
What to look for around EUR
Spot is prolonging the rebound from last week’s lows in sub-1.10 levels, always underpinned by the renewed weakness around the greenback and hopes of a US-China trade deal. The up move, however, seems to have met a tough hurdle in the 1.1080/90 band for the time being. On the macro view, the outlook in Euroland remains fragile and does nothing but justify the ‘looser for longer’ monetary stance by the ECB and the bearish view on the single currency in the medium term at least. In this regard, all the attention will be on the publication of flash PMIs for the current month later in the week.
EUR/USD levels to watch
At the moment, the pair is advancing 0.05% at 1.1077 and faces the next up barrier at 1.1081 (high Nov.19) followed by 1.1091 (100-day SMA) and finally 1.1179 (monthly high Oct.21). On the downside, a breach of 1.0989 (monthly low Nov.14) would target 1.0925 (low Sep.3) en route to 1.0879 (2019 low Oct.1).
- Wall Street looks to open in positive territory.
- 10-year US Treasury bond yield stays quiet following Monday's selloff.
- US Dollar Index fluctuates in tight range below 98.
The USD/JPY pair rose above the 109 handle on Monday but failed to preserve its bullish momentum as the uncertainty surrounding the United States (US)-China trade dispute caused investors to move towards safe-havens such as the JPY. With the lack of significant fundamental drivers paving the way for technical price action, the pair was posting modest daily gains at 108.75 at the time of press.
US-China trade conflict remains in spotlight
Chinese news outlet Global Times on Tuesday reported that the US and China had a "long way to go" to come to terms on trade and end the conflict.
Additionally, commenting on the CNBC report that claimed China could wait for the outcome of the 2020 presidential election in the US before signing a trade deal, "China appears set on trying to ‘wait Trump out’, which was a meme we heard earlier in the trade war, rather than pinning its hopes on a “phase one” deal – of which we have been highly sceptical from the get-go," said Rabobank analysts. "It also suggests no trade deal at all due to red lines of intellectual property, subsidies, and enforcement mechanisms."
Nevertheless, the S&P 500 Futures is up 0.25% ahead of Wall Street's opening bell and a decisive rebound in major stock indexes on Tuesday could help the pair edge higher toward the 109 handle.
On the other hand, the US Dollar Index is fluctuating in a tight range near the 97.80 mark on Tuesday, allowing the risk sentiment to affect the pair's movements. The only data from the US on Tuesday showed that Building Permits and Housing Starts both rose sharply in October, 5% and 3.8% respectively, but did little to nothing to help the greenback gather strength against its peers.
Technical levels to watch for
- Bulls manage to regain control amid improving global risk sentiment.
- Strength beyond a short-term descending trend-line inspired bulls.
- A move towards the 0.6500 handle now looks a distinct possibility.
The NZD/USD pair showed some resilience below 200-hour EMA and managed to regain some positive traction on Tuesday. The momentum lifted the pair to two-week tops around the 0.6425 region, or levels beyond last week's post-RBNZ swing high.
A sustained strength above a three-day-old descending trend-line resistance, around the 0.6405-10 region, was seen as a key trigger for bullish traders and behind the latest leg of an upsurge witnessed since the mid-European session amid improving risk sentiment.
Meanwhile, technical indicators on 4-hourly/daily charts have been gaining some bullish traction and support prospects for an extension of the ongoing positive momentum. However, slightly overbought conditions on the 1-hourly chart warrant some caution.
Hence, any subsequent move up seems more likely to confront a stiff resistance near the 0.6445-50 heavy supply zone, which if cleared decisively might negate any near-term bearish bias and set the stage for a further near-term appreciating move for the pair.
Above the mentioned barrier, the pair seems all set to aim towards reclaiming the key 0.6500 psychological mark before eventually aiming to test the very important 200-day SMA resistance near the 0.6520-25 region.
On the flip side, the 0.6400 handle now seems to protect the immediate downside and is closely followed by support near the 0.6380-75 horizontal zone. Failure to defend the said support levels is likely to accelerate the slide towards testing a strong support near the 0.6330-25 region.
NZD/USD 1-hourly chart
- Housing Starts rebounded strongly in October after September's decline.
- US Dollar Index largely ignored the upbeat reading.
According to the data published by the United States Census Bureau, Housing Starts in October rose 3.8% on a monthly basis following September's -7.9% contraction and came in better than the market expectation of 0.6%.
Further details of the publication revealed that Building Permits in the same period increased 5% after declining 2.4% in September and surpassed analysts' estimate of 0%.
These readings had no impact on the greenback and the US Dollar Index was last down 0.05% on the day at 97.78.
Citing three sources familiar with talks, Reuters on Tuesday reported that Russia was unlikely to agree to deepen additional oil output cuts at the Organization of the Petroleum Exporting Countries' (OPEC) meeting in Vienna on December 5th.
"We expect uneasy talks in December. Russia will not categorically agree to (deepen) cuts in winter," a source told Reuters.
"Serious consultations have not yet started. Rollover looks more likely. Russia cannot reduce more in winter time. But surprises are always a possibility," added another source.
Crude oil prices came under renewed bearish pressure on these comments and the barrel of West Texas Intermediate was last seen trading at $56.30, erasing 0.95% on a daily basis.
- The pair failed to capitalize on the previous session’s positive move.
- Break below 71.65-60 support should pave the way for further slide.
After an initial uptick to levels beyond the 72.00 handle, the USD/INR pair came under some renewed selling pressure and has now eroded a major part of the previous session's gains.
The downtick, also marking the third day of a negative move in the previous four, dragged the pair back closer to a support marked by 38.2% Fibonacci level of the 70.53-72.37 move up.
The mentioned region coincides with 200-hour SMA and is closely followed by a two-week-old ascending trend-line support, which if broken might be seen as a key trigger for bearish traders.
The pair then could accelerate the slide towards the 71.20 region – 61.8% Fibo. – and the downward trajectory could further get extended towards testing sub-71.00 levels in the near term.
On the flip side, the 71.95-72.00 region now seems to act as an immediate resistance, which if cleared has the potential to lift the pair back towards monthly tops around the 72.35-40 region.
Some follow-through buying might negate any near-term bearish bias and set the stage for a move back towards challenging September monthly peak – around the 72.65 region.
USD/INR 1-hourly chart
- Lack of clarity on US-China trade talks keep investors on edge.
- RBA reiterates readiness to ease policy further if needed.
- US Dollar Index moves sideways near 97.80 mark.
After dipping below the 0.6800 handle pressured by the Reserve Bank of Australia's (RBA) policy remarks during the Asian session, the AUD/USD pair gained traction and was last seen trading at 0.6820, adding 0.2% on a daily basis. However, this move seems to be a technical correction in the absence of significant macroeconomic drivers.
The minutes from the RBA's November meeting showed that the board was prepared to ease the policy further if needed and agreed that an extended period of low interest rates would be required to meet targets. On top of the uncertainty surrounding the United States (US)-China trade talks, the RBA's dovish comments weighed on the AUD.
Focus remains on US-China trade dispute, FOMC minutes
Following CNBC's report about China mulling the option to wait for the 2020 US presidential election before finalizing a trade agreement with the US, “During an entrepreneurship roundtable in Beijing, the two sides had apparent disagreements on the nature of trade relationship, with the US insisting that it hasn't had enough benefits,” Chinese news outlet Global Times reported.
On the other hand, the greenback stays relatively quiet as investors are waiting for the Federal Open Market Committee (FOMC) to release the minutes of its October meeting on Wednesday. As of writing, the US Dollar Index, which registered modest losses on Monday, was flat on the day at 97.80.
Technical levels to consider
- The Henry Hub Natural Gas futures are declining for the second day in a row.
- Milder US weather has been undermining demand and weighing on prices.
- Tuesday's daily chart is pointing to an uptrend with higher highs and higher lows.
Large swathes of the southern United States are experiencing hot and dry weather. The above-normal weather encompasses areas from Houston Texas to Portland, Oregon. The "Pacific Blob" is set to keep the mercury above average, but below the persistent heat experienced in 2015.
The warm wave comes after a cold snap and diminishes the demand for heating gas. Prices of natural gas – which have been on the rise last week – are declining to the lowest levels since October 28.
It is important to note that the Northeast continues experiencing colder weather, with advisories issued for nine states. Another wave of harsh weather may eventually engulf North America.
Natural Gas Price Today
At the time of writing, the Henry Hub Natural Gas futures for December 2019 have hit a low of $2.534, down from $2.56. This slide completes a climb down from the peak of $2.904 seen in early November.
Zooming out, NatGas prices remain in an uptrend, typical to the winter season. The swing high of $2.904 mentioned earlier is higher than the $2.88 high recorded in mid-October. The fresh low of $2.534 is above the $2.41 level recorded in early November, which in turn, is above $2.391 seen in late October.
On the other hand, momentum on the daily chart has turned negative, and futures slipped below the 50 and 100 Simple Moving Averages after dropping below the 200 SMA.
Additional levels to watch are $2.639, $2.751, $2.50, and $3.00.
- The pair stalled its recent positive momentum ahead of 1.30 handle.
- A pickup in the US bond yields extended some support to the USD.
- The downside seems limited amid the recent UK political optimism.
The GBP/USD pair finally broke down of its daily consolidative trading range and dropped to fresh session lows, around the 1.2930 region in the last hour.
The pair failed to capitalize on the previous session's positive move to four-week tops and edged lower during the mid-European session on Tuesday, snapping four consecutive days of winning streak amid a modest US dollar rebound.
Driven by the USD price dynamics
As investors digested the latest trade-related developments, improving risk sentiment-led goodish pickup in the US Treasury bond yields helped the greenback to stall its recent pullback and prompted some long-unwinding trade.
It is worth recalling that a CNBC report on Monday indicated that Chinese officials were pessimistic over a trade deal with the United States and exerted some fresh downward pressure on the greenback – for the third consecutive session.
In absence of any fresh trade-related headlines, market participants now seemed inclined to lighten their bearish USD bets amid some repositioning trade ahead of Wednesday's important release of the FOMC policy meeting minutes.
Meanwhile, increasing chances of a majority for the Conservative Party at the upcoming UK snap election on December 12 might continue to underpin the British pound and helped limit deeper losses, at least for the time being.
Moving ahead, Tuesday's US economic docket, featuring the release of housing market data, coupled with speeches by influential FOMC members, might influence the USD price dynamics and provide some fresh trading impetus.
Technical levels to watch
XAU/USD Once again fails near $1475 level
Gold failed to capitalize on its early uptick to over one-week tops and once again started retreating from the $1475 resistance zone. Currently hovering around the $1466 region, the commodity has now erased all of the previous session's modest intraday gains.
The mentioned barrier represents a previous horizontal support breakpoint and the lower end of a one-month-old trading range, which is closely followed by 100-day SMA and should act as a key pivotal point for the commodity's next leg of a directional move. Read more...
Gold: bulls need a decisive pop above $1494
Following the downside break of $1458 key October low, gold has engaged in a mild unwinding drift back higher. We continue to see this move will be the source of the next chance to sell. There is resistance of overhead supply $1474/$1480 which is now being tested. Another failure around here could be the trigger signal.
The RSI failing around 45/50 would be a negative signal now and already the Stochastics are looking tired in a rebound. The hourly chart shows a recovery has lost some of its impetus now and more neutral set up is beginning to develop across momentum indicators. Initial support of yesterday’s low at $1456 now protects $1445. The bulls need a decisive pop above $1494 to really suggest a sustaining recovery. Read more...
- The recovery in EUR/USD appears to have run out of steam in the 1.1080/90 band, home of the 21-day and 100-day SMAs.
- A convincing breakout of this hurdle is needed to allow a potential visit to the 1.1180 area.
- In this region converge the October/November tops, the key 200-day SMA and a Fibo retracement of the 2017-2018 rally.
EUR/USD daily chart
FX Strategists at UOB Group are still of the view that USD/JPY should be heading towards the 108.00 area in the next weeks.
24-hour view: “We expected USD to trade sideways within a 108.50/108.95 range yesterday. However, it popped to a high of 109.06 before plummeting to an overnight low of 108.50. The sharp and rapid decline has scope to extend lower even though any weakness is likely limited to a test of 108.40. The next support at 108.25 is likely out of reach. Resistance is at 108.90 followed by 109.05”.
Next 1-3 weeks: “USD rose to 109.06 yesterday, not far below our 109.15 ‘strong resistance’ level. As highlighted last Friday (15 Nov, spot at 108.50), only a break of 109.15 would indicate that the current downward pressure has eased. Until then, the bias is still on the downside even though after yesterday’s price action, 108.00 may not come into the picture so soon (the minor support at 108.25 may temporarily check any decline in USD)”.
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