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    Rupee in wait-and-watch mode; Q2 GDP, US-China trade talks in focus

    Rupee in wait-and-watch mode; Q2 GDP, US-China trade talks in focus

    Rupee in wait-and-watch mode; Q2 GDP, US-China trade talks in focus
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    By Kunal Sodhani   IST (Updated)

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    Taking into account both domestic and global cues, we expect USD/INR to trade broadly in the range of 71.20 to 72.25.

    India's GDP growth came in at 5 percent in the first quarter of the fiscal year 2019-20 and is expected to sink further in Q2FY20. Manufacturing growth particularly may have taken a hit, given a high base and volume decline as was seen in the subdued industrial production data. The average outstanding growth of the NBFC sector has gone down further to around 35 percent YoY in Q2 from around 39 percent in the last quarter. Domestic passenger vehicle sales continued their decline for the last six months, particularly the lower strata PVs. Unseasonal rains contributed to crops getting spoilt. Industrial credit growth in several sectors has taken a hit.
    Taking into account all these factors, we expect the GDP growth
    at around 4.6 percent. Today's GDP data after higher CPI numbers will also give us a clear picture of what the central bank can think in the monetary policy meeting on December 3-5.
    Globally, headlines about the US-China trade war continue to dominate. US President Donald Trump signed the Hong Kong Human rights and democracy act into law. China has repeatedly warned the US administration not to interfere in its internal matters. Now, it remains vital to watch does this step hurt the relationship between the US and China, particularly at a time when both sides are trying to reach a 'Phase One' trade deal.
    Implied EUR/USD volatility, calculated using option prices on a three-month horizon, is trading roughly at 4.27 percent, the lowest on record, having fallen from 7.16 percent in January. The trading range this week was the narrowest in 20 years, falling to around 35 pips. It seems to be a lull before a storm. Major support for EURUSD pair remains at 1.0960 levels while first resistance comes around 1.1060 levels (21DMA).
    Electoral Calculus predicts the Tories to gain 43 seats on December 12, which would give a majority of 72 seats. The Tories manifesto is PM Johnson’s Brexit deal, with Johnson stating that the agreement is oven-ready. Polls will continue to dominate the headlines though before the election date. Major support for GBP/USD comes at 1.2820 levels while resistance at 1.2995 levels.
    The RBI has bought around $18 billion of foreign exchange since end of September, which somewhere gives an indication that the central bank may be looking forward to curbing sharp rupee appreciation and possibly support exports.
    Brent crude shouldn't be ignored, it is slowly ticking higher towards $65 a barrel, the OPEC meeting remains important to watch next week with respect to production updates.
    Taking into account both domestic and global cues, we expect USD/INR to trade broadly in the range of 71.20 to 72.25. Technically, 61.8 percent Fibonacci retracement levels comes around 71.20 while monthly top is near 72.25 levels.
     
    Kunal Sodhani, AVP, Global Trading Center, Shinhan Bank India.
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