What next in Currency markets?

Extended consolidation phase against mixed cues

Global cues continue to stay mixed! US economic data do not provide clarity on FED start of rate-hike cycle, post the expectation shift from June-September 2015 to October-December 2015. In the meanwhile ECB front loaded QE against mood-swings on Greece default. Both combined, DXY shifted trading focus from 96.50-100 to 93-96.50 (and EUR/USD from 1.0450/1.05-1.10/1.1050 to 1.08/1.0850-1.14/1.15). The squeeze in US-Euro zone yield differential also came in favour of the Euro for switch-over of investments from US to Euro zone. There is better clarity ahead now. FED may not delay start of rate hike cycle beyond Q4/2015 despite plea from IMF for deferral into 2016. All cues taken, USD Index short term big-picture is not beyond 93/93.50-100/100.50 with most trades at 94.50-98.00 in sideways mode.

EUR/USD is seen to have established near term stability at 1.07/1.0850-1.1350/1.15 against limited clarity to set breakout bias either-way (into 1.05 or 1.18). For the week, prefer sideways trading mode at inner-ring of 1.08/1.0950-1.1250/1.14.

USD/JPY held above 123.65 to hit 125.65-125.90 target with high at 125.85 before firm weekly close at 125.61. The intra-May bullish chase from 118-118.50 is closed at 125.50-126. What next? Retain bullish undertone while above 123.65-124.15 for 129-135.

Rupee continue to stay in administered consolidation mode

USD/INR is in consolidation mode at 63.45/63.60-64.20/64.35, since lift of base from 61.65-62.15. It has held thrice at lower end and twice at the higher end before close at 63.75, thanks to RBI's firm presence at either end. Spot #Rupee moves have been in perfect traction with end June'15 $ at 63.85/64-64.50/64.65 and 12M $ at 67.75/68-68.75/64.00 in back-and-forth mode. What next?

The short term outlook is not in favour of Rupee, driven by weak domestic cues and uncertain external cues. It is possible that demand-supply dynamics may shift from RBI $ buy mode to $ sell mode to protect Rupee weakness beyond recent low of 64.28, and to prevent extended Rupee weakness into 64.65-65.00. The hedging strategy is retained to buy end June'15 $ at 63.85-64.00 and 12M $ at 67.85-68.10, while exporters cover June'15 $ at 64.50-64.65 and await spot shift to 63.85/64-64.85/65 for cover beyond June'15 (12M $ into 69-69.50). For now, retain focus at 63.60/63.75-64.20/64.35 while preparing for short term range focus shift to 63.85/64.00-64.70/64.85, adjusting for time decay.

EUR/INR traded to the script, back-and-forth at 69.00/69.25-73.00/73.25 before close of week at 70.85. While there is better clarity on short term range (not beyond 68/68.50-73/73.50), the volatility is high against mixed cues in EUR/USD (within 1.08-1.14) and bullish momentum in USD/INR (into higher end of 63.60-64.60). For now, let us retain zoom-in focus at 69.50-72.50 in sideways mode.

Have a great week ahead; Good luck!

Moses Harding