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Currency Market Turns Rangebound

Monday, January 20, 2014
By Pramit Brahmbhatt

Pramit Brahmbhatt is CEO of Alpari Financial Services (India)

Last week, not much action was seen in the currency market. USD/INR pair traded range bound as on one side the local equities traded strong for the week and closed on a positive note on weekly basis after falling for two consecutive weeks, also the foreign fund inflows in the bond market, helped the Rupee to appreciate and on the other hand, dollar index traded strong as a run of mixed U.S. economic data left the market uncertain about its future direction which forced the Rupee to trade weak and eventually it closed near its previous close. The trading range for the spot USD/INR pair is expected to be within 61.00 to 62.00.

It is recommended to be cautious and Buy USD/INR Futures on dips with the appropriate stop loss as the Rupee is expected to depreciate against dollar. Pivot Point for the Pair is at 61.65 and below is the Support and Resistance levels.

The US Dollar strengthened against majority of its counterparts as improvement in Retail Sales, PPI and ISM manufacturing once again fuelled expectations that US economic recovery is sustainable, signalling additional tapering of monthly monetary asset purchases in the upcoming FOMC meeting, scheduled for January 28 - 29. Nonfarm Payrolls, released last week, questioned the strength of US labour market, forcing the US Dollar Index to close negative on a weekly basis. Fewer economic indicators were scheduled to release this week, though majority of the released economic numbers signalled improvement of US economy. The positive economic releases helped market players to forget the disappointment generated by Nonfarm Payrolls last week. Should the scheduled figures continue to paint a rosy picture of US economy, the expectations surrounded by the additional tapering in near term can once again gain momentum which can further strengthen the US Dollar.

Euro region currency witnessed negative news this week as the strongest nation in the region, Germany, witnessed a downtick in their GDP numbers last Wednesday. The preliminary Real GDP figure of Germany for the year 2013 grew by a meagre 0.4%, the slowest pace in last four years as against the market expectation of 0.5% rise. The Euro region currency weakened after this release.

GBP weakened against US Dollar for the week as market players feared housing market bubble due to nearly six year high home sales data released last week. Although, BoE Members, in their testimony against parliament, revealed that this isn't an issue to worry about as they are observing housing market details closely. The Great Britain released its Retail sales figure on the last trading day of the week which signalled an improvement of 2.6% as against the previous release of 0.3% rise which helped pound to gain some support.

Japanese Yen once again weakened against the US Dollar, helping the USD/JPY to posts its record level for the month of January last week. Moreover, BOJ Governor, Haruhiko Kuroda, said that Bank of Japan would continue adhering to lose monetary policy until the price target achieves, signalling further weakness of Yen.

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