Morning briefing: Euro can head towards 1.0500

Vikram Murarka Kshitij Consultancy Services

The Strong Dollar after the higher-than-expected US CPI (2.58% Y/Y%) weighs on most other currencies. While the Dollar Index shows further strength towards 107-107.35, the Euro can head towards 1.05/1.04 taking down the Aussie and Pound towards 0.6450-0.64 and 1.26/25 respectively. USDCNY has resistance near 7.25/26 from where a rejection can be expected. The Dollar Yen could continue to rise towards 157/158 while the Dollar Index extends its rally while EURJPY could see a slower rise towards 165. EURINR is bearish towards 88.50 while USDINR has scope to test 84.50 while above 84.30.

The US Treasury yields have risen above their resistance contrary to our expectations. If this break sustains, more rise is possible going forward. In that case our view of seeing a fall will go wrong. The inflation data release for the month of October showed an uptick. The US Headline CPI rose by 2.58%, up from 2.41% seen in September. The US Core CPI rose by 3.3%, up from 3.26% over the same period. The German yields continue to move up and are keeping intact our bullish view. The yields have room to rise further. The 10Yr GoI is moving up within its range in line with our expectation. It can inch up towards the upper end of the range.

The Dow Jones surged to 44141.33 before retreating to close below 44000. We maintain our outlook for a potential decline toward 42000-41000 while the index remains capped below 44500. The DAX dropped to a low of 18838 before closing around 19000. A failure to sustain above 19000 could drive the index lower, with targets at 18700–18500. The Nifty broke below 23800, subsequently falling below 23600 too. Further, it has room to witness a fall to 23500–23300, even to 23000. However, at the same time, a possible corrective bounce to 23800 cannot be ruled out. The Nikkei, after attempting a rise to 39084, has declined to 38600. Immediate support exists at 38500; a break below this level could extend losses to 38000. Shanghai is holding above 3400 and looks bullish towards 3500-3550.

Crude prices have recovered after testing their immediate support levels while Metals have declined on a strong Dollar. Crude prices could bounce back towards 74-76 (Brent) and 71-72 (WTI) while above support levels. Gold could fall to 2550-2500 while below 2600. Silver and Copper may remain subdued for a few more sessions before attempting to rise. Natural Gas has risen sharply and can fall in the near term while below 3. A range between 3.0-2.6 looks likely for the medium term.

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Author

Vikram Murarka

Kshitij Consultancy Services

Vikram has been forecasting, trading and hedging currencies since 1991. Beginning his career as a currency trader in Essar Group, he was managing an FX exposure of $1.2 bln.

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