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Heylo… Today is 18th of Sep, Friday and welcome to our daily 5 minutes podcast, Currency Street…..We have composed the latest market news and price action that drove the international forex markets, yesterday, and a short slice of what to expect, for today.

I’m your host and dost, Shobhit Manwar and I am delighted to welcome you, here……so, get ready, hold on to your morning chai/coffee and let’s walk, down the lanes, of Currency Street. (sing)

The Indian rupee is likely to open higher against the dollar tracking a broad-based advance in regional currencies after Democrat Joe Biden was declared as the next U.S. President.

The rupee will be quoted at around 73.90-73.95 in early trades compared with 74.20 in the previous session making a high of 74.95, according to our currency dealer at Fraktal ForEX. Starting today, the Indian central bank has extended trading hours for currency and bond markets from 10:00 a.m. to 3:30 p.m. local time, compared with the current schedule of 10:00 a.m. to 2:00 p.m.

“Biden’s win has brought back the risk-on sentiment. Asian currencies, especially the yuan, seem to be the beneficiaries of Biden’s win, given the likelihood of favourable international trade policies. The rupee should be of no exception,” the trader said. “However, the RBI will be uncomfortable with the rupee’s rise above 73.85, and that should deter speculative bets on the currency.

USD: Conviction trade

 SpotWeek ahead biasRange next week1 month target
DXY92.2590Mildly Bearish92.0000 – 93.000093.0000
  • The dollar has seen a big drop over the last week – anything from a 1% drop against the JPY to a near 4% fall against the NOK. It seems investors don’t want to miss out on the expected rally in Rest Of World assets that a post-Trump era would signal. The week ahead will presumably be driven by the final results of the US election. Price action over the last week, however, suggest investors are positioning for a post-Trump era, which, with a Fed keeping rates near zero, is seen as a dollar negative. 
  • Away from the US election, the US macro story is holding up quite well, including the October jobs report. US data this week will include NFIB small business optimism and October CPI – neither of which will move markets. The biggest threat to the benign dollar sell-off story probably comes through Covid-19. New daily Covid cases in the US are running above 100k per day, which could prompt state governors to close bars and restaurants again – a move that could hit very bullish current sentiment.  

EUR: Weaker dollar trumps lock-down fears

 SpotWeek ahead biasRange next week1 month target
EUR/USD1.1880Neutral1.1750 – 1.19501.1800
  • EUR/USD has been lifted by the broad-based dollar sell-off. We doubt that EUR/USD is ready to break above 1.20 yet, largely because of the coming downturn in the Eurozone economy as lockdowns bite, but also that the US may also be suffering lockdowns (bad for risk assets) over coming weeks. We are aware, however, that we may be underestimating how quickly investors are ready to price a post-Trump world (more pro-trade) too. Another reason the market may be not too keen to take EUR/USD through 1.20 is a pick-up in ECB rhetoric against a strong EUR.
  • Of the ECB events in the week ahead, we’d highlight Thursday’s ECB forum, where Lagarde, the Fed’s Powell and BoE’s Bailey all speak.  

JPY: A new paradigm?

 SpotWeek ahead biasRange next week1 month target
USD/JPY103.30Neutral103.10 – 104.50104.00
  • That USD/JPY is trading under 104, while global asset markets are rallying is slightly disconcerting. US real yields have not really fallen to justify the move and instead it just looks like the JPY is caught up with a broad dollar decline. Here this seems to be money taken out of USD deposits and put to work across the asset and credit spectrum, dragging USD/JPY lower in the process. If this benign story continues, we certainly would not expect the JPY to lead FX gains against the dollar, but USD/JPY could continue to press 103.
  • Fortunately for the BoJ, as we’ve discussed in this space over recent weeks, some of its closest trading partners in Asia have also seen strong local currency gains against the dollar – e.g. $/CNY at 6.59. This means that the trade-weighted JPY is not particularly strong and is still some 4% from its March highs. We would not expect the Japanese MoF (responsible for FX intervention) to be too concerned just yet (after all the Nikkei is doing very nicely indeed) nor do we expect the market to take too much notice of the MoF or BoJ saying they are ’monitoring FX markets closely’. It would probably take a disorderly move below 100 and some Nikkei losses to spark a more credible threat of action.

GBP: Getting closer to the finishing line

 SpotWeek ahead biasRange next week1 month target
GBP/USD1.3110Mildly Bullish1.2980 – 1.33001.3100
  • The UK EU trade negotiations are getting into the final phase, with the outcome possibly emerging over the next two weeks. We continue to expect an eventual agreement. The ongoing sharp decline in preferences of the Conservative Party in polls should be one more reason for the UK government to move towards a deal, given the likely hit to the UK economy from the no deal scenario. Hence, the GBP/USD risk remains titled to the upside. This week’s gains in GBP/USD were primely caused by the EUR/USD rally, but during the next weeks the sterling leg should start contributing too.
  • On the UK data front, we have a labour market data (Tuesday). Given the deteriorating economic outlook we should continue to see signs that unemployment is rising.  But as was the case over the past months, domestic data should have a limited impact on the GBP price action (the currency reaction to the BoE meeting last week provided the case in point) with all the focus being on the UK-EU trade negotiation outcome.

CAD: Time to break below 1.30?

 SpotWeek ahead biasRange next week1 month target
USD/CAD1.3024Mildly Bearish1.2840 – 1.31401.3000
  • The jobs market kept showing positive signs in Canada with the unemployment rate falling below the 9% mark and 86k jobs added in October despite new spikes in Covid-19 cases. This should keep expectations for more stimulus by the Bank of Canada low after the Bank announced last week that bond purchases will shift to longer maturities. Next week’s speeches by Governor Macklem and Deputy Governor Wilkins will unlikely add much to the BoC rhetoric.
  • CAD will therefore be still primarily driven by global factors next week: barring a risk-correction after this week’s rally and more USD weakness can now easily push USD/CAD below the 1.3000 mark. Still, CAD is once again underperforming its procyclical peers during big risk-on rallies (by contrast, it shows more resilience in troubled times) despite its high correlation to risk, and this dynamic should remain in place in the near term.

CHF: All eyes on the 0.9000 level in USD/CHF

 SpotWeek ahead biasRange next week1 month target
EUR/CHF1.0680Neutral1.0650 – 1.07101.0600
  • As markets increasingly priced in a victory by Joe Biden, the reaction in FX has proven to be more of a USD-negative one rather than a generalized risk-on wave where other safe-havens would have normally underperformed. We were already expecting CHF to outperform USD and JPY in a Biden-win scenario, but USD/CHF appears to have gained particular downside momentum as it has now broken below the key 0.9000 support. 
  • USD/CHF continues to be the pair to watch as the similar reaction of EUR and CHF to the US-elections is keeping EUR/CHF rather stable. We discussed last week how a softer stance by Joe Biden on foreign FX intervention practices could suggest some downside risk to CHF as some market participants may imply more freedom for the SNB to curb CHF rallies. CHF good performance likely signals it is too early for markets to look at this side of the story.

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