Pradeep Khanna, Director & Head of FX Trading, HSBC India says barring worries over Eurozone, the euro is likely to trade higher in the medium-term. He tells CNBC-TV18 that the weakening dollar supports the growth rally for the Euro. Below is the verbatim transcript of Khanna's interview with Latha Venkatesh and Anuj Singhal of CNBC-TV18 . Also watch the accompanying video Q: The euro was hitting towards that 1.47 mark but recoiled from it a tad. There is the ECB meeting coming up. How do you see the euro-dollar trajectory for the short-term and for a slightly a longer-term quarter? A: Euro is basically being driven by factors both from the US, as well as from the euro zone. There is unfortunately not extreme clarity on both. We have seen a fair amount of volatility over the last month on account of risk costs in the form of weaker US data as well as in the form of worries on the euro zone periphery, Greece etc. If the euro zone worries lessen, then there is a lot more likelihood of euro rates going higher than there is of the USD even in the medium term. Also, there is an expectation because of weak US data and expectations that US rates will stay low, that the dollar will generally be a bit weak. That tends to support euro in terms of an alternate major reserve currency and there is a fair amount of recycling of reserves that happen of reserve managers etc. So we would generally tend to think that barring major worries from the euro periphery, one should see euro reasonably well supported and should then trade higher in the medium-term. Q: What’s the call on the rupee? Last time you said that you see rupee at Rs 44.15. It’s now at Rs 44.70. What’s the trajectory that you see for the currency? A: We think that the rupee is a very range bound story, unfortunately not that interesting. I would probably venture to say, maybe a Rs 44-46 kind of a range which broadly is a couple of percent on either side of where we are right now. The current trade deficit of about USD 8-9 billion per month seem to translate towards fairly flat balance of payment on a flow basis and that’s a very well balanced flow market. There is nothing really all that much in the environment to immediately suggest extreme dollar strength or weakness. However, there is this perception that with the US economy trading a little weak, you will see dollar stay a bit weak in the medium-term. There is the end of QE2 coming up at the end of June and the market, one must bear in mind, has got used to having a QE around for a fairly extended period now. There are a fair number of people who are exercising some caution because they are not absolutely sure as to whether the market might actually take the end of QE to be a short-term dollar bullish story. However, medium-term, I think the dollar stays fairly weak and on the rupee we think that it’s fairly range bound. Q: Would you want to take a punt on the dollar index itself? I don’t know if currency traders look at even technical levels at that index but how would you see it going? In the event of QE2 ending that is it ends later this month, what kind of gains at all would you see in that index and in the medium-term what kind of lows are you seeing in the dollar index? For instance, in 2011 itself, does it go below that 73 mark that has been a support? Do we see it creating fresh lows for itself this year? A: I would say more than really whether it would fall below 73. I generally kind of think of 76.5 kind of number as a number to watch out for in case it gets above that, in case of a major risk of at some stage. And as long as we trade below 76.5 I tend to think that the dollar continues to trade weak. Maybe in the short-term there are going to be a fair number of players who are just going to be a bit cautious. They are not going to take huge bets especially considering that May was a risk off month. They probably would like to see how exactly the end of QE is taken by the markets. And then don’t forget that July is often a small month with a lot of people going off on vacations in the US etc. You might just be in for a dull kind of couple of months. But, as far as the dollar index is concerned I would in general look for a 76.5 and if you would stay below that then its support the weak dollar case

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