USD Asia tracked through a tight range watching the EUR move from the sidelines with China and South Korean markets out.

INR the major focus

USDINR moves lower trading with heavy tone on headlines that the Government is in talks with the RBI for a USD swap window.

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Something key to watch out for in the coming days is India delving into the option of opening a window for oil marketing companies (OMCs) to buy US dollars directly from the Reserve Bank of India (RBI) to arrest the rupee’s slide. Indeed, drastic times call for drastic measures. Remember OMC’s are getting 100 % of their dollar requirements from the market which will take a massive burden off the Rupee.

But when things were looking up headline risk rears its ugly head.

RBI unlikely to take knee-jerk reaction on INR and Oil

RBI averse to separate USD window for Oil companies

These headlines cannot be good news for a currency that is trading at an all-time low. INR is reacting very negatively and is now at 73.23. Markets remain extremely unsettled.

Rupee and Oil

Bu looking at the SWAP window which would be short-term bullish for both oil prices and the Rupee as it would temporarily halt the debate about how the weaker EM currency profile INR could have a negative impact on domestic oil imports but ultimately everyone must pay the piper. RBI would not be giving the USD to oil companies for good, but merely doing sell/buy FX swaps with them. In other words, only delaying the inevitable, but in theory, the hope is that these measures will allow the INR to be better positioned to withstand higher oil prices.

The biggest concern, however, is a weaker INR could be catastrophically destabilising for India capital markets as at some point India would have increased problems servicing their US dollar-denominated debt.

Oil prices

Brent remains firm despite consolidating recent gains as the market rebalance positions based on a further decline in Iranian crude oil production versus the September increases in overall OPEC supply and Russian record output. But Oil bulls are sitting tight and are looking for a catalyst to take over the top and clear a path for and the assault on $100,

But Oil interest has sparked up in London markets, and in the absence of any specific headlines, I suspect its more of ” the song remains the same” on the bullish narrative scale. But the sentiment is likely getting a bump from Italian de-escalation possible risk While oil traders are back on p hurricane watch as Leslie is an official Hurricane now tracking 505m east-southeast of Bermuda.

While we’re waiting for something to break on oil prices. We’re now taking wagers on which Oil producing giants will become the undisputed heavyweight champion of the oil patch, Russia vs the USA., and this is in the wake of the Russia eye-catching 11.36 million barrels per day record output.

Gold Prices

Are trading lower as Italian risk abates, suggesting we will return to the DXY -XAU correlation shortly again. But indeed, more than a few gold traders are licking their wounds after last nights squeeze.

G-10 Currencies

The EURO: A tempest in a cappuccino cup or mama mia, here we go again?

The Italy show was the only game in town in Singapore, and even then, there didn’t seem to be any significant alarm bells ringing despite the EUR pulling back from near-term oversold positions.

While the Italian headlines didn’t precisely toggle the “risk on” sentiment switch, cross-asset are trading more positively.

The markets realise anything can happen in the next six weeks notwithstanding the fact 2 % is still a monster of a deficit and two years is an eternity when it comes to being budget compliant. Deficits tend to take on a life of their own and dragon if not move higher. Given the emotional nature of Italian politics, there will be lots of political manoeuvring ahead of the final decision, so the market will probably be less keen to extrapolate too much out of today’s headline. Indeed, curb your enthusiasm but do tune in the headlines in Europe.

Trading the EUR is difficult in these conditions given the next signal is little more than a political headline out of Italy.

Japanese Yen

Not much from Powell last night, a mixed bag of headlines to sway sentiment in Asia. In London and New York, traders will be on the outlook for more headlines around Italy and whatever and whatever could potentially ignite but the dollar bulls are holding on. However, on a test below 113.50, I’m sure there will be more than a few who will reconsider staying long USDJPY as that would be a clear signal risk is getting very very shaky.

Canadian dollar

BOC is well priced through the end of next year. While a bit of Grind vs the USD bullish bets continue to play out through the EUR rather than USD

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