TODAY: Friday, 02^nd August, 2024

USD/INR:

INR likely to open around 83.75

Dollar rose back yesterday even as FOMC rate cut expectations remain, after weak macro data in the form of ISM indices provided enough ground for safe haven buying. US equities fell sharply and the tech index sank after weak earnings.

Dollar Index is at 104.40, with EUR at 1.0790, GBP at 1.2720, and JPY at 149.65. BOJ hiking rates yesterday did little to prop up the Yen, which was sold after the event. US 10y is down to 3.95% as markets tackle the possibility that the US economy might indeed be showing clear signs of slowdown evident in PMI indices. DOW ended 1.2% lower and NASDAQ fell 2.3%. Indian indices were flattish, but are now set up for weakness today, following the overnight US market cues.

The fall in US 10y is a net positive for Rupee, for now. But a continued risk aversion led move can hurt the Rupee. Brent has been holding in the 80 USD range despite the middle easter war concerns as the supply is still not affected due to potential Israel conflict. Rupee could be exposed to more pressure if Oil starts to also climb. 

Today’s NFP will be in focus for markets, with hopes that the data print will be just in a goldilocks zone, and just enough for gradual rate cuts. INR remains range-bound, and the Dollar strength despite falling yields will keep the Rupee under pressure. But the overall balance is still neutral and the range might hold as long as the NFP remains benign enough.

MAJOR WORLD CURRENCIES:

GBP/USD extends its losses following the Bank of England‘s (BoE) decision to deliver a broadly expected 25-basis point rate cut at its August meeting held on Thursday. The GBP/USD pair trades around 1.2720 during the Asian session on Friday.

BoE Governor Andrew Bailey explained the decision to reduce the policy rate to 5% and addressed media questions. Bailey noted that the increase in the minimum wage has not been detrimental from their viewpoint. According to Bailey, while firms often cite higher minimum wages as compressing pay scales, the overall inflation trajectory, including upside risks, is now closer to the 2% target compared to the median forecast.

The US Dollar (USD) may advance against its peers due to increased risk aversion. Recent manufacturing and labor market data have erected a complex situation involving an economic slowdown in the United States (US) and increased expectations for a Federal Reserve rate cut. If the economic downturn becomes too severe, it could negatively impact market sentiment, rendering any rate cuts from the Fed irrelevant.

US ISM Manufacturing Purchasing Managers Index (PMI) tumbled to an eight-month low of 46.8 in July, compared to the previous 48.5 reading and the forecasted move up to 48.8. US Initial Jobless Claims for the week ended July 26 rose to 249K from the previous week’s 235K, exceeding the forecast uptick to 236K.

The CME's FedWatch Tool shows that traders are fully anticipating a 25-basis point rate cut on September 18. Traders are likely to closely watch the upcoming July US Nonfarm Payrolls and Average Hourly Earnings data, set to be released later in the North American session, for insights into the US labor market.

EUR/USD:

EUR/USD retraces its recent losses from the previous session, trading around 1.0800 during the Asian hours on Friday. The analysis of the daily chart indicates that the pair is following the lower boundary of a descending channel, which suggests a reinforcement of the bearish trend.

Additionally, the 14-day Relative Strength Index (RSI), a momentum indicator, remains below the 50 level, confirming the bearish sentiment for the EUR/USD pair. Should the RSI approach the 50 level, it could diminish the bearish bias and offer some support for the pair.

On the downside, a break below the lower boundary of the descending channel around the level of 1.0800 could reinforce the bearish sentiment and exert pressure on the EUR/USD pair to navigate the region around the key level of 1.0670, potentially serving as a throwback support level.

In terms of resistance, the EUR/GBP pair may face a barrier around the nine-day Exponential Moving Average (EMA) at 1.0825, and further resistance could be at the upper boundary of the descending channel around 1.0850. A breakout above this level might drive the pair back to the four-month high of 1.0948.

Gold

Gold price is gathering pace to resume the recent upside early Friday, following a flattish close on Thursday. Gold price needs to find acceptance above the $2,450 barrier but its next price direction depends upon the US Nonfarm Payrolls data release.

Gold price witnessed a lackluster performance on Thursday, as markets assessed the implications of the dovish US Federal Reserve (Fed) policy outlook and the escalating Middle East geopolitical tensions between Iran and Israel.

Even though odds for a 50 basis points (bps) Fed rate cut in September rose, and there was widespread risk aversion, Gold price failed to capitalize, as investors rushed to safety in the US Dollar (USD) instead.

Risk-off flows remained in vogue, courtesy of the heightening Middle East tensions. New York Times reported that Iranian Supreme Leader Ali Khamenei has ordered a direct strike on Israel for the killing of Hamas chief Haniyeh. Meanwhile, Israel confirmed on Thursday the killing of Hamas military chief Mohammed Deif after days of suspense.

Later in American trading, risk aversion intensified after the US ISM Manufacturing PMI showed further contraction and raised worries over the health of the US economy. The flight to safety mode spiked up the demand for the Greenback and the US government bonds, weighing heavily on the US Treasury bond yields, with the benchmark 10-year rates giving up the 4.0% key level.

US ISM Manufacturing PMI declined from 48.5 to 46.8 in July, falling below the expected 48.8. New orders dropped from 49.3 to 47.4. Downbeat US data ramped up bets for a 50 bps September Fed rate cut to 31%, compared to 12% seen a day before. Dovish Fed expectations offset the broad US Dollar comeback, cushioning the downside in Gold price.

Early Friday, Gold price is finding fresh demand from a pause in the US Dollar upsurge, as traders refrain from placing fresh bets on the buck in the lead-up to the all-important US labor market data. The US NFP report holds more significance this time around, especially after the US central bank tweaked its policy statement on Wednesday to say that it is "attentive to the risks to both sides of its dual mandate", rather than previously only noting its attention to inflation risks.

USD/INR Cash/Tom/Spot Levels: (in Paisa)

(Updated as on 02^nd August, 2024, @ 09.00am)

 Cash/Tom: 0.15/2.00                   Cash/Spot:0.20/2.75

 Tom/Spot:  0.05/0.75                    Spot/Next: 0.05/0.75

Cash Date:  02.08.2024

Tom Date:   05.08.2024

Spot Date:   06.08.2024

Outlook for the day 02^nd  August, 2024

Rupee expected to trade in range of 83.62-83.76

MAJOR WORLD CURRENCIES: as on (01^st August, 2024)

Foreign Currencies

Updated: 17:30 hrs. (12:00 GMT) on 01^st August, 2024

Precious Metals

Updated: 17:30 hrs. (12:00 GMT) as on 01^st August, 2024

Stock Indices

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