EUR/USD: Oversold conditions, Powell may pull it from the multi-year lows

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The world’s most popular currency pair is trading close to the 2019 trough of 1.0879, and a break below this level opens the door to levels last seen in 2017. The main downside driver of euro/dollar has been economic divergence. The US economy enjoys solid growth – with Friday’s jobs report still underpinning the greenback – while the old continent is struggling. Monday’s Sentix Investor Confidence missed with 5.2 points, expressing lower expectations.

The euro has also been suffering from political developments in Germany. Annegret Kramp Karrenbauer resigned from leading Chancellor Angela Merkel’s ruling CDU party and the grand coalition seems vulnerable.

The coronavirus outbreak continues dominating headlines with the death toll topping 1,000. On the other hand, most of China is back to work after extended holidays and the number of new cases has fallen. Stock markets are on the rise and the safe-haven US dollar is edging lower. Nevertheless, EUR/USD’s uptick is minimal – a dead cat bounce. The common currency is exposing its weakness.

The Relative Strength Index on the four-hour chart is well below 30 – indicating oversold conditions and an upcoming bounce. However, this rise may be shortlived as momentum remains to the downside and the pair continues trading below the 50, 100, and 200 Simple Moving Averages.

Some support awaits at the daily trough of 1.0905, which is also the lowest since October. The next level is critical – 1.0879 was the 2019 low. Further down, prices seen back in 2017 await EUR/USD, and these include 1.0810 and 1.0790.

Resistance is at 1.0925, which had a role in October, followed by 1.0940 which provided support earlier in February. Next, we find 1.0965 and 1.0985.

GBP/USD hits 7 week low amid Brexit uncertainty, USD strength

By Ritu,

Capital Sands

GBP/USD has resumed its falls and hit the lowest since mid-December after the EU and the UK laid out different views for post-Brexit relations, raising the odds of no deal. The US dollar is gaining amid upbeat data.

On its way down, pound/dollar fell below the 50, 100, and 200 Simple Moving Averages on the four-hour chart. Moreover, it dropped below the uptrend support line that had accompanied it since mid-January and momentum turned positive.

However, the Relative Strength Index is close to 30 – near oversold conditions. This development implies that an upside correction may be coming soon. A correction could be temporary.

GBP/USD continues battling 1.2955, the low point in January. Further down, 1.29 is a round level and also worked as support in mid-December. It is followed by 1.2875, 1.2820, and 1.2775.

Looking up, resistance awaits at 1.2975, which was a cushion in late January. Next, 1.3010 is a veteran resistance line, and it is followed by 1.3035, which held GBP/US down in late January. 1.3075, 1.3110, and 1.3175 are next.

RBI seen holding rates, retaining dovish stance

By Ritu

Capital Sands

The Reserve Bank of India is likely to keep monetary policy accommodative without cutting interest rates at a policy meeting on Thursday, economists said, as inflation is above target and the economy has shown possible signs of recovery from its worst slowdown in more than a decade.

The central bank’s monetary policy committee (MPC) cut rates by 135 basis points over five straight meetings last year, before surprising markets in December by holding the policy repo steady at 5.15% due to growing concerns over inflation.

A Reuters poll of economists, conducted before the federal budget on Feb. 1, showed the central bank is expected to keep the repo rate unchanged until at least October, when it is seen resuming its easing path.

The RBI is now forecast to next cut rates by 25 basis points to 4.90% in the October-December quarter, though some analysts reckon the central bank will keep rates on hold for longer.

Data released after the MPC’s December meeting fuelled even more concern as annual retail inflation surged to 7.35% in December, mainly driven by food prices, its highest level in more than five years.

The RBI is mandated to keep the headline inflation rate within the broad range of 2%-6% while it targets medium term inflation at 4% levels.

For all the gloom over India’s economy, a private survey released on Monday showed manufacturing activity expanded at its quickest pace in nearly eight years in January with robust growth in new orders and output.

The government’s budget gave only limited support to a recovery in economic growth, with proposals got only moderate spending increases and small cuts in personal taxes.

Modi’s guarded stimulus unlikely to revive Indian growth

By Ritu

Capital Sands

India’s new budget is unlikely to drag Asia’s third- biggest economy out of its worst slowdown in more than a decade as the government has proposed only moderate spending increases and small cuts in personal taxes, economists said on Sunday.

They said there was a risk the government might miss its fiscal deficit target for 2020-21 as it was dependent on raising almost $30 billion from the sale of stakes in state-run firms and financial institutions to meet ambitious revenue goals.

In its budget for the year starting in April unveiled on Saturday, the government relaxed its fiscal deficit target so it could spend an nearly $15 billion more, mainly on infrastructure and farming, while pushing ahead with privatisations.

Economists and industry leaders said the budget proposals would provide some support to growth over the longer term but were insufficient to give it an immediate boost.

India’s economy is forecast to grow 5% in the year ending in March, its weakest pace in 11 years, ratcheting up the pressure on Prime Minister Narendra Modi, who is already facing backlash over a socially divisive citizenship law.

Economists said India risked missing its budget deficit target of 3.5% of GDP in 2020-21 as the government’s revenue growth target of nearly 10% depends on raising almost 2.1 trillion rupees ($30 billion) from privatisations.

Putin speeds up Russian political shake-up, details new power centre

By Ritu,

Capital Sands

President Vladimir Putin accelerated a shake-up of Russia’s political system on Monday, submitting a constitutional reform blueprint to parliament that will create a new centre of power outside the presidency.

Putin also replaced Prosecutor General Yuri Chaika, who had held the role since 2006, a move suggesting his planned changes could reach beyond the political system and the government.

In a surprise move, Putin announced plans for reforms last week. Long-time ally Dmitry Medvedev then resigned as prime minister along with the government, saying he wanted to allow room for the president to make the changes.

Putin’s proposed changes are widely seen as giving him scope to retain influence once his term expires in 2024 though he said at the weekend he did not favour the Soviet-era practice of having leaders for life who die in office.

In one of the biggest changes, the status of the State Council, now a low-profile body that advises the president, would for the first time be enshrined in the constitution.

Putin, 67, has not disclosed what he plans to do once he leaves the Kremlin. One option could be to head the beefed-up State Council once he leaves the presidency.

Under his proposals, the president would pick the make-up of the State Council which would be handed broader powers to “determine the main directions of domestic and foreign policy.”

His changes also envisage preventing any future president serving more than two terms. Putin first became president in 2000 and is now in his fourth term as head of state.

World’s richest 2000 people hold more than poorest 4.6 billion combined: Oxfam

By Ritu,

Capital Sands

The world’s richest 2,153 people controlled more money than the poorest 4.6 billion combined in 2019, while unpaid or underpaid work by women and girls adds three times more to the global economy each year than the technology industry, Oxfam said on Monday.

The Nairobi-headquartered charity said in a report released ahead of the annual World Economic Forum of political and business leaders in Davos, Switzerland, that women around the world work 12.5 billion hours combined each day without pay or recognition.

In its “Time to Care” report, Oxfam said it estimated that unpaid care work by women added at least $10.8 trillion a year in value to the world economy – three times more than the tech industry.

It is important for us to underscore that the hidden engine of the economy that we see is really the unpaid care work of women. And that needs to change,” Amitabh Behar, CEO of Oxfam India, told in an interview.

To highlight the level of inequality in the global economy, Behar cited the case of a woman called Buchu Devi in India who spends 16 to 17 hours a day doing work like fetching water after trekking 3km, cooking, preparing her children for school and working in a poorly paid job.

“And on the one hand you see the billionaires who are all assembling at Davos with their personal planes, personal jets, super rich lifestyles,” he said.

Behar said that to remedy this, governments should make sure above all that the rich pay their taxes, which should then be used to pay for amenities such as clean water, healthcare and better quality schools.

Pound Falls After Weak U.K. Retail Boosts Prospect of Rate Cut

By Ritu,

Capital Sands

The pound slipped after U.K. retail sales data unexpectedly fell in December, increasing the chances that the Bank of England may cut a key interest rate this month.

Sterling dropped 0.2% to $1.3049 and declined against all its Group-of-10 peers as the volume of goods sold in stores and online fell 0.6% in December, confounding expectations of a 0.6% increase. Money markets are pricing a 75% chance of a rate cut on Jan. 30, compared with 62% on Thursday.

Markets are now turning their attention to impending purchasing managers’ indexes for further signs of the BOE’s direction.

“Clearly, there is a chance for a decent rebound of the PMIs next week and this may stay the BOE’s hand,” said Valentin Marinov, a strategist at Credit Agricole  SA. “That said, following this week’s weaker CPI and retail sales, the bar for stable rates is getting very high.”

Traders had been speculating that the central bank will cut rates at Mark Carney’s last monetary policy decision as BOE governor after a flurry of dovish comments from policy makers. The yield on 10-year U.K. government bonds was down three basis points at 0.61%, falling a sixth day and on course for its longest streak since August.

Sensex gained 1,000 points in 36 sessions to scale Mt 42K; over 300 stocks up 10-100%

By Ritu

Capital Sands

The Sensex crossed 42,000 for the first time as it touched 42,059 in the morning trade on January 16. It took 36 sessions for the index to make the journey from 41,000 (first hit on November 26) to 42,000, but the big movers were the small & midcap stocks.

The Sensex added 1,000 points, rising 2.4 percent, but the BSE Midcap index rose 4.8 percent and the BSE Small-cap index rallied by more than 8 percent in the same period.

The rally can be attributed to positive global cues, reforms initiated by the government to combat falling growth and expectations of reforms from the Budget that will be presented on February 1.

Small & midcaps seem to be getting the maximum attention as most of the stocks in the broader market space have been giving double-digit returns from November 26, 2019.

The global investment bank Morgan Stanley said in a report the trend could well favour quality midcaps in 2020.

Morgan Stanley said it was backing three themes for 2020:

a) domestic cyclical outperform defensives,

b) value and growth stocks beat quality stocks,

c) mid-caps lead the largecaps.

Investor wealth soared by over Rs 6 lakh crore in a buoyant equity market. The market capitalisation of BSE-listed firms soared from Rs 153.70 lakh crore on November 26 to Rs 159.74 lakh crore on January 15, 2020.

Bank of England’s Saunders sticks to rate cut view

By Ritu,

Capital Sands

Bank of England interest-rate setter Michael Saunders said on Wednesday he was sticking to his view that borrowing costs should be cut because of weakness in Britain’s labor market and its broader economy.

“It probably will be appropriate to maintain an expansionary monetary policy stance and possibly to cut rates further, in order to reduce risks of a sustained undershoot of the 2% inflation target,” Saunders said in a speech.

“With limited monetary policy space, risk management considerations favor a relatively prompt and aggressive response to downside risks at present.”

Saunders was one of two of the nine members of the BoE’s Monetary Policy Committee who voted to cut interest rates in late 2019.

Since then, other MPC members have said a rate cut might be necessary, including BoE Governor Mark Carney.

Saunders said some recent business surveys suggested Britain’s economy had improved while others had worsened than remained sluggish.

“But, taken as a whole … business surveys are generally soft and consistent with little or no growth in the economy.”

Michael Patra appointed deputy governor of RBI for a three-year term

By Ritu,

Capital Sands

Michael Debabrata Patra, 59, has been appointed the Reserve Bank of India (RBI) deputy governor for three years. The post fell vacant after Viral Acharya resigned on July 23 last year.

Patra, as executive director of the central bank, was the principal advisor to the Monetary Policy Department since July 2012. He was also an internal member of the monetary policy committee (MPC). He was in deputation at the International Monetary Fund (IMF) as senior adviser to executive director (India) from December 2008 to June 30, 2012. During the period, Patra was advising the executive board of the IMF in dealing with the global financial crisis and the Euro area sovereign debt crisis.

A practising central banker from inside the system and remarkably familiar with Indian financial markets, Dr Patra is sine qua non for monetary policy making,” said Soumya Kanti Ghosh, group chief economic advisor to State Bank of India. “Dr Patra has also pioneered research in the Indian context on monetary conditions index, exchange rate pass through, market microstructure and monetary policy without money,” Ghosh said.