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Rupee extends losses, EUR/USD trading sideways

Thursday,   06-Dec-2018   12:26 PM (IST)

The Indian rupee extends the fall and is currently trading lower at 71.09/10 levels (12:14 pm) in the afternoon deals after touching the low of 71.14/15 levels as global shares extended fall ahead of a crucial meet between major oil producers. Asian equities and currencies across the region declined today. U.S. equity futures slipped by about a percent, and 10-year Treasury yields dipped to 2.90%. Fitch Ratings said on Thursday it expects the Indian currency to weaken to 75 rupees against the U.S. dollar by the middle of next year on a widening current account deficit and tighter global financing conditions. Fitch lowered India’s GDP growth forecast to 7.2% in 2018-19, followed by 7.0% in 2019-20 and 7.1% in 2020-21. Equity benchmarks have extended their losses, with the Sensex falling over 350 points, while the Nifty is well below 10,700. As per the technical indicators, range for USDINR pair for the remaining part of the day may be 70.75-71.40 levels. Rupee has an immediate support at 71.22 levels. A breach of the same may see rupee at 71.35 followed by 71.56 and 71.77 levels. On the positive side rupee is likely to face resistance at 70.88 levels and if it is able to break the same then it may gain up to 70.67 levels followed by 70.54 and 70.42 levels. In the forward segment 1mth, 3mth and 6mth annualized premia are currently trading at 3.88%, 3.89% and 4.01% respectively.

The EUR/USD pair is trading in a sideways manner around 1.1340 for the fourth day straight despite the EUR-positive developments in the bond markets. To start with, the spread between the two-year US Treasury yield and its German counterpart is down at least 16 basis points from the high of 358 basis points seen a month ago. Further, the benchmark yield spread is seen at 268 basis points - the lowest level early October. Also, Italy-German 10-year yield spread has narrowed to 279 basis points - the lowest level since Oct. 4.So far, however, that has not put a bid under the EUR, possibly due to fears of economic recession stemming from the Treasury yield curve inversion. The EUR, however, may pick up a strong bid if German factory orders, scheduled for release at 07:00 GMT, blows past expectations. Meanwhile, the US dollar could take a beating if the US ISM non-manufacturing index shows a weakening of price pressures. Moreover, that could hasten the curve inversion between the two-year and 10-year yield. Both treasury yields and the US dollar could also come under pressure if Fed's Powell puts more emphasis on the rising risks to the US economy, forcing markets to price in a rate pause in 2019. The central bank chief is scheduled to speak today.