USDINR has a downward bias, GBPINR displays upward momentum, and EURINR remains range-bound in the currency market.
Date: June 02, 2023
Place: New Delhi, India
USDINR:
The Indian Rupee (INR) has been benefiting from a confluence of factors, including Foreign Portfolio Investor (FPI) inflows and a reversal in the US Dollar Index’s trajectory. This shift has resulted in a strengthening of the Rupee against the US Dollar (USD). While concerns arise due to historically low forward premiums, the overall low levels of realized and implied volatility alleviate potential risks.
However, sellers of straddle or strangle options may have experienced discomfort as intraday volatility reached its highest level since early April. With exceptionally low implied volatility, option sellers have minimal cushioning, increasing risks associated with direction-neutral bets. Experts advise reducing overnight positions and considering hedged strategies like the iron fly when option premiums are at such low levels.
Moreover, India’s manufacturing Purchasing Managers’ Index (PMI) demonstrated impressive growth, surging from 57.2 in April to 58.7 in May, marking the highest reading in 31 months. This positive performance stands in contrast to the struggles faced by the manufacturing sector worldwide, as indicated by PMI surveys. The Indian economy continues to outshine with commendable performance, attracting steady FPI inflows. PMI data also revealed that new orders expanded at the most rapid pace since January 2021, while foreign demand experienced its fastest growth rate in six months.
USDINR futures are expected to start trading around 82.34/36 levels, showing a negative bias. Key support levels are anticipated near 82.30 and 82.10/15, while resistance levels lie near 82.50 and 82.65. It’s worth noting that the central bank has been observed intervening in the past nine months to accumulate dollars whenever the exchange rate dipped below the 82.00 threshold. Therefore, caution is advised regarding short positions if the spot falls below the 82.00 handles.
GBPINR:
The performance of GBPINR is expected to be notably stronger compared to EURINR. In the United Kingdom, core inflation surged in April, reaching its highest level in 32 years. This significant increase in core inflation is likely to prompt the Bank of England to implement further rate hikes.
Consequently, UK government bond yields have surpassed those of the Eurozone and the United States, providing support for the British Pound (GBP) against both currencies. GBPINR has recently exhibited a range-bound movement between the levels of 102.00 and 103.00.
However, analysts predict an upward shift in this range, with expectations for levels of 102.50 and 103.50 in June futures. For the day, support levels are projected near 103.00 and 102.85, while resistance is expected near 103.35 and 103.50/55. The overall bias remains upward for GBPINR.
EURINR:
The eurozone’s inflation rate experienced a larger-than-anticipated decline in May, with preliminary data indicating a drop in the annual headline inflation rate from 7% in April to 6.1%. This marks the lowest level observed since February 2022.
Core inflation, excluding energy and food, also demonstrated a more significant decline than expected, falling from 5.6% to 5.3%. Over the past year, the European Central Bank (ECB) has implemented rate hikes, raising rates from -0.50% to 3.25%, the highest level since November 2008.
Market expectations in the money market suggest that the ECB will conduct another 25 basis points hike in both June and July, bringing rates closer to the anticipated terminal rate of approximately 3.75%- 4.00%. As a response, EURUSD rebounded by 130 pips from its Wednesday low of 1.0634, and EURINR also experienced a recovery.
However, for the day, EURINR is anticipated to remain range-bound due to the expected low volatility in both EURUSD and USDINR. The range is projected to be between 88.55 and 89.05.
To sum up, the currency market update is experiencing interesting dynamics with USDINR showing a downward bias, GBPINR displaying upward momentum, and EURINR maintaining a range-bound movement.
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References-
https://www.investopedia.com/terms/f/foreign-portfolio-investment-fpi.asp
https://indianexpress.com/article/business/economy/manufacturing-growth-may-data-8640985/
https://www.imf.org/-/media/Files/Publications/WEO/2022/October/English/text.ashx
https://www.wsj.com/articles/eurozone-inflation-fell-more-than-expected-as-core-rate-falls-e9ece0b2
