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This article is more than 2 year old.

Federal Reserve hints for a pause ahead, rupee backed by oil, dollar index and domestic inflows while Brexit uncertainty continues

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The expected opening for rupee can be around 70.80 levels on the back of lower crude prices, dollar index moving left, and unabated foreign fund inflows in domestic equity markets.

Federal Reserve hints for a pause ahead, rupee backed by oil, dollar index and domestic inflows while Brexit uncertainty continues
The Federal Reserve lowered its benchmark funds rate by 25 basis points to a range of 1.5 percent to 1.75 percent (vote in favour of the policy was 8-2, stating some boardroom division still continues). This was the third cut this year as part of what Fed Chairman Jerome Powell has characterised as a "mid-cycle adjustment" in a maturing economic expansion.
The Fed dropped its pledge to "act as appropriate to sustain the expansion" while adding a promise to monitor data as it "assesses the appropriate path of the target range for the federal funds rate."
As with the past two cuts, Kansas City's Fed President Esther George and Boston's Eric Rosengren dissented and preferred to keep the rate unchanged.
Impact:
The 10Y UST dropped from 1.83 percent to 1.77 percent, DXY moved left around 97.31 levels. USDJPY touched a high of 109.28, EURUSD rallied towards 1.1168 levels and Sterling hovering around1.2923 levels.
Technical levels to watch:
a. EURUSD: 1.1200 remains an important resistance (200DMA) while on the down side 1.1120 remains the first support.
b. GBPUSD: Immediate resistance comes around 1.2990 levels and support comes at 1.2803 levels (October, 29 low).
c. USDJPY: Immediate resistance comes around 109.27 (Daily High) and support comes around 108.20 levels.
Factors that weighed on US economy:
a. Manufacturing activity continues to remain weak due to global slowdown.
b. Trade tensions that have hurt exports and business investments.
c. The danger that low inflation pushes inflation expectations lower.
Description of the US economy was little stronger than expected as stated by Fed Chair Jerome Powell several times during the press conference that the labour market is strong, household spendings are rising at a solid pace, job gains remain solid, unemployment has remained low (around 50-year low) and GDP grew at an annual rate of 1.9 percent in Q3, while on the other side stated that the policymakers are not on a pre-set path and will continue to monitor incoming economic data before committing to their next move.
These statements somewhere state that the Fed has moved to potentially going on pause atleast for the next policy.
On the other end, Chile has withdrawn as a host of an APEC trade summit in November where US and China had been expected to take major steps on the trade war front, but optimism still continues until clarity, USDCNH is trading around 7.0395 levels which is a reflection. Bank of Japan policy due today, will likely hold off from expanding stimulus.
On the UK front, the campaign will pit Boris Johnson, the face of the pro-Brexit movement, against the radical left-wing Labour leader Jeremy Corbyn, both gearing up for general election to be held on December 12.
The authorities have set a deadline of November 26 for people to register to vote and the cut-off point to apply for postal votes is the same day. Brexit, National Health Service (NHS) and immigration have been the three most concerned things amongst the voters. Debates are expected to be surrounded around these topics. In the general election, the UK's 46 million voters are invited to choose an MP for their area — one of 650 constituencies. Any party with more than half the MPs (326) in the Commons usually forms the government. The UK's voting system means that parties can take power with well below 50 percent of the national vote.
Brent Crude prices fell to $60.45/barrel after Energy Information Administration (EIA) reported a crude oil inventory built of 5.7 million barrels for the week of October 25, further pressuring oil prices a day after American Petroleum Institute (API) reported an estimated fourth consecutive inventory build-up of 592K barrels.
The rupee had closed at 70.90 yesterday, and further appreciation can be seen when it opens today. The expected opening can be around 70.80 levels on the back of lower crude prices, dollar index moving left, and unabated foreign fund inflows in domestic equity markets. Important support for USDINR is at 70.55/60 and resistance comes around 71.20 levels.
- Kunal Sodhani, AVP: Global Trading Center, Treasury, Shinhan Bank India.
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