Currency Research Desk

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1 Currency Research Desk Currency weekly 23 DEC,2013 Global economic review There were large number of economic indicators reported from the US last week though the focus for the markets was on the monetary policy front, which at last managed to develop some momentum to reduce its $85 Bln worth of monthly bond purchase program. There were host on data on manufacturing, housing, construction, revised GDP and including inflation in the US economy though the focus of the market continued on the monetary policy front. INDICES LAST 1 week ago % Change NIFTY SENSEX NASDAQ DOW JONES INDUSTRIAL SHANGHAI COMPOSITE NIKKIE In its two day, monetary policy meeting, the US Fed finally HANGSENG took the markets head-on and announced the tapering of its FTSE Index bond purchase program by $10 Bln. Surprisingly, Fed s CROSS LAST 1 week ago % Change purchases were equally divided amongst Treasuries and MBS EURUSD by $5Bln each against our last weeks anticipation that the Fed might not touch the MBS segment as it could create worries GBPUSD over the long-term mortgage rates. This development USDJPY impacted all the asset classes wherein by end of the week, the USDCAD US Dollar is higher by 0.7% to mark (Friday evening USDCHF IST) while Euro slipped by nearly a similar percent to USDSEK and JPY fell over a percent to level and also hitting its DOLLAR INDEX lowest level since Oct, On the equity side, markets particularly the US took tapering as a positive step as it bolstered the stance that world s largest economy was improving. Europe followed suit though a mixed performance was seen in Asia. In commodities, Bullion plunged though this news had a mixed impact base metals and energy. Dollar Index Currency S2 S1 Close R1 R2 Recommendation Dollar Index Buy AT TP SL BELOW Fundamental Outlook Next week, we have few economic cues to be watched wherein it would also be a truncated one due to Christmas. From the US we have the Personal Income/Spending reading wherein both are likely to improve with traders and investors would be keenly watching the spending number as this would be a crucial indicator of Christmas and Year End sales. Later we have the University of Michigan confidence number which is likely to see stability of marginal increase as it s the Final Oct reading. The other major data points would be the Durable goods orders data which is anticipated to see some bit of optimism after extended drop in last couple of weeks. In the last four month, durable goods order have been on a negative note for two months with the latest October number too showing a drop in 2%. With the latest industrial production number too coming robust, we feel some bit of optimism would be reflected in this reading as well. The other number on same day i.e. 24th would be the New Home Sales number for November. Though the other housing number like pending and existing homes have been on a negative note lately, we feel new home sales would show continued growth as they would be get good backing out of the building permits and the construction spending number. Overall we have fewer numbers of readings next week though largely they are expected to continue show improvement and support the bullishness in the US Dollar which also would continue take positivity out of the Fed meeting. The worry would be the truncated part wherein we have Christmas holiday early closing on 24th. Also this being the last week ahead of the New Year could infuse higher than normal volatility amongst markets with lower participation. We have a cautiously positive outlook on the US Dollar next week. Currency Research Desk Mail Us at currencyresearch@karvy.com 1

2 TECHNICALSNAPSHOT:- As of Friday evening (8.00 PM IST ) the greenback is trading at the level, a gain of over 0.50% over the week gone by.our buying view the prior week continues to hold well for the greenback.earlier in the week it tested a low of 79,80 and then tested a high of In doing so it has approached the upper end of the down sloping trend channel resistance depicted on the charts and hence we could expect a pullback initially in the next week before we could expect the buying to resume.going by the Fibonacci retracement projection swing range ( ) the greenback has breached past the 23.6% level at and a sustained trade above the same could propel it higher to its 38.2% level at From a daily chart perspective the greenback is in a short term uptrend as it hovers comfortably above the major short term moving average mainly 8.13 and the 21 ema s which are clustered in the range of levels.hence on any pullback from the current levels could be utilized to buy the greenback. Overall we continue to maintain a bullish outlook for the greenback and recommend to buy on declines. Economic data for the week ahead Date Time Country Event Period Survey Prior 12/23/ :00 US Chicago Fed Nat Activity Index Nov /23/ :00 US Personal Income Nov 0.40% -0.10% 12/23/ :00 US Personal Spending Nov 0.50% 0.30% 12/23/ :25 US Univ. of Michigan Confidence Dec F /24/ :30 US MBA Mortgage Applications Dec % 12/24/ :00 US Durable Goods Orders Nov 1.60% -2.00% 12/24/ :00 US Durables Ex Transportation Nov 0.80% -0.10% 12/24/ :30 US House Price Index MoM Oct 0.40% 0.30% 12/24/ :30 US New Home Sales Nov 448K 444K 12/24/ :30 US New Home Sales MoM Nov 0.80% 25.40% 12/24/ :30 US Richmond Fed Manufact. Index Dec /26/ :00 US Initial Jobless Claims Dec K 12/26/ :00 US Continuing Claims Dec K Currency Research Desk Mail Us at currencyresearch@karvy.com 2

3 USD/INR CURRENCY CONTRACT S2 S1 CLOSE R1 R2 RECOMMENDATION USDINR-MCX-SX DEC BUY AT TP SL BELOW USDINR-NSE DEC BUY AT TP SL BELOW Fundamental Review The Indian rupee traded sideways for the whole week and ended flat to marginally negative against the dollar. Earlier it witnessed a high of and then tested a low of Despite the Reserve bank of India keeping the key benchmark rates the Repo rate, Reverse repo rate and the Cash reserve ratio unchanged at 7.75%, 6.75% and 4.00% respectively the rupee witnessed a fall against the dollar post the decision. However it pared some of its losses in the next few sessions. While the other major announcement came after the Fed meeting in which the chairman Mr. Bernanke announced they would start curtailing on their monthly 85B$ bond purchase program by 10B $ which now reduces the figure to 75B$ each month. Along the same lines he also reiterated a dovish stance going forward which kept the US equity indices to trade higher on the same day. While most of the Asian equity markets reflected the positivism the next day they ended mostly mixed though the domestic indices (NIFTY and the SENSEX) despite opening higher couldn t sustain the gains leading to a sell off. However for the week they closed higher at 6274 and levels gaining about 1.72% and 1.76% respectively. MCX-SX Contract OPEN HIGH LOW CLOSE % CHANGE VOLUME % CHANGE OPEN INTEREST % CHANGE Dec % NA NA NA Jan % NA NA NA Feb % NA NA NA Fundamental Outlook: In the coming week we believe the rupee could be driven majorly by the inflows/outflows in the domestic indices as well as the dollar index. We believe the dollar index to trade higher in view of the tapering affect as well as anticipation of better economic data s in the forthcoming week from the US. While domestically we only have the eight infrastructure index number for the month of November to be released any day between the 25th December 2013 to 1 st January 2014.While the prior number stood at -0.60% no major surprises are to be expected. Being the penultimate week of the year end we expect the participation in the major asset classes could diminish in the major markets of the world which may result in the currency market s to trade with less volatility. Taking cues out of the same the rupee could be subdued in the coming week. However the overall trend continues to remain negative for the rupee against the dollar. Economic data for week ahead Date Time Country Event Period Survey Prior 12/25/ /02 IN Eight Infrastructure Industries Nov % Currency Research Desk Mail Us at currencyresearch@karvy.com 3

4 TECHNICAL SNAPSHOT:- The Indian rupee spot ended the week on a marginally negative note at 62.04, shedding 0.14% over the week gone by. While it witnessed a low of it reached a high of during the week. Overall the rupee traded mixed for the week while it now depicts a Doji candlestick formation on the weekly charts suggesting indecision between the buyers and the sellers about the future direction of the prices. Hence we believe the price movement would now majorly depend on a break above /below the Doji candle high /low which are at and levels respectively.devoid of any breakout the prices could continues to hover in between the aforementioned levels. From a price action point though the prices have made a higher high and a higher low in comparison with the prior week high and low which were at and levels respectively. Hence we believe there might be a possibility of the price movement could be inclined towards buying in the coming week While the momentum oscillator relative strenght index too suggest positive momentum likely to sustain as it is still at the 55 levels indicating strength in prices. From a daily chart perspective too the rupee has closed above the major short term moving average mainly the 5,8,13 averages which are clustered in the range of and indicating support unless breached. The ADX which determines the strength in the prior trend is at the 15 level with the DMI+ at 22 and DMIat 21 indicating slightly positive bias. However a lower ADX number continues to indicating a non trending phase in the market. Considering the aforementioned factors we could expect the rupee to trade in a range levels for the week and recommend buying on declines. Recommendation: RUPEE (SPOT) BUY AT TP SL BELOW USD-INR-DEC-MCX-SX-NSE- BUY AT TP SL Below Currency Research Desk Mail Us at currencyresearch@karvy.com 4

5 EUR/USD CURRENCY CONTRACT S2 S1 CLOSE R1 R2 RECOMMENDATION EURUSD SELL AT TP SL EURINR-MCX-SX DEC SELL AT TP SL EURINR-NSE DEC SELL AT TP SL Fundamental Review As of Friday 5:30 PM IST euro currency is seen trading at $ down by 0.62%. Euro currency declined for the first time in last six weeks after Federal Reserve planned to taper off its bond buying programme in the next month. In the FOMC meeting Fed decided to reduce its bond buying programme by USD10 billion from $85B to $75B pushed US dollar higher against its major counterparts. However, except the US dollar euro currency advanced against a few other currencies. Euro/JPY traded higher. Basically euro ended down against the US dollar post the FOMC meeting decision took place last week. In the meanwhile, the economic data released in the last week from euro area were also restrained in the market. We believe the last week was all about US dollar story and likely that the effect may continue to prolong in the next week. Besides the US dollar story, the European economy is still facing its structural problems. Euro zone now agrees on banking reforms. Euro-zone finance ministers have agreed on a long-awaited pact on how to deal with failing banks in the region. It aims to create a 55bn euro fund - financed by the banking industry, over the next 10 years. The fund would be backed by a new agency, which will decide on how to deal with failing banks. However, we believe it is still a long time taking effort and its effect would gradually be noticed in the economy. MCX-SX Contract OPEN HIGH LOW CLOSE % CHANGE VOLUME % CHANGE OPEN INTEREST % CHANGE Dec % NA NA NA Jan % NA NA NA Feb % 23 NA NA NA Fundamental Outlook Coming to next week we believe euro currency may continue to trade down. In one hand post FOMC meeting decision on tapering Fed s bond programme may continue to keep the US dollar higher which may pressure euro to remain lower while in the other hand euro may remain lower by looking at the already existing delicate economic health. From the economic data front we have a very few releases in the next week so either euro currency may drift lower or the performance could be subdued. We have euro zone consumer confidence number which is expected to remain lower near -15 while import and export numbers may have less influence in the market. As we have been discussing in our previous weekly report on euro currency and the economy s health we believe unless the inflation rate is maintaining below ECB s target rate European Central Bank may consider more monetary easing. The latest release of euro-zone inflation stood near 0.90%. So, we believe euro currency may slowly wane in the short term. Hence, we recommend selling euro currency against the US dollar. However, euro might fall less against its other counterparts like Japanese yen. Currency Research Desk Mail Us at currencyresearch@karvy.com 5

6 Economic data for week ahead Date Time Country Event Period Survey Prior 12/20/ :30 EC Consumer Confidence Dec A /24/ /28 GE Import Price Index MoM Nov -0.20% -0.70% 12/24/ /28 GE Import Price Index YoY Nov -3.10% -3.00% TECHNICAL SNAPSHOT As of Friday evening 5.30 PM IST the Euro is trading at 1,3655 levels,shedding about 0.62% over the week gone by.earlier it tested a high of but then drifted sharply lower to test a low of Unable to sustain above the prior week spinning top candle high at has led the pair to witness profit booking and a break below the spinning top candle low at has led to further selling in the euro. Though the prices moved higher initially we have seen that the price move was in divergence with the relative strength oscillator suggesting fading upside momentum in the currency. The relative strength index could weaken and approach the support at 51 which could mean the Euro moving lower in the coming week s. Also that the upper end of the weekly Bollinger band which is around the level as was mentioned in our prior reports has acted as a strong resistance. As a result of which we believe the price might be heading towards the mid 20 weekly Bollinger band level at where it could find support. Considering the aforementioned factors we suggest a sell in the euro. GBP/USD CURRENCY CONTRACT S2 S1 CLOSE R1 R2 RECOMMENDATION GBPUSD RANGE GBPINR-MCX-SX DEC GBPINR-NSE DEC SELL AT TP 101,58 THEN SL SELL AT TP THEN SL Currency Research Desk Mail Us at currencyresearch@karvy.com 6

7 Fundamental Review : The Pound as of Friday evening 5.30 PM IST is seen to be trading at the , a gain of nearly 0.29% over the week gone by.earlier it witnessed a low of but then moved up sharply higher to reach a high of However the Fed announcement of tapering its monthly bond purchase from the existing $85B to $75B led the pound to weaken due to a strengthening dollar.while a weakening consumer confidence for the third consecutive month in December and the UK budget deficit widened stemmed further selling in the currency.despite the negative triggers the pound still managed to eek out gains against the greenback. MCX-SX Contract OPEN HIGH LOW CLOSE % CHANGE VOLUME % CHANGE OPEN INTEREST % CHANGE Dec % NA NA NA Jan % 4746 NA NA NA Feb % 22 NA NA NA Economic data for week ahead: Date Time Country Event Period Survey Prior 12/24/ :00 UK BBA Loans for House Purchase Nov Fundamental Outlook In the coming week we believe the pound to trade sideways against the greenback.though there are no major economic releases from the UK zone except the BBA loans for house purchase to be released on the 24 th of December.However we believe a strengthening dollar could limit the upside in the pound. TECHNICAL SNAPSHOT:- As of Friday 5.30 PM IST the cable currency is trading at the level, a gain of 0.29% over the prior week. Earlier it tested a low of and then bounced sharply to reach a high of Though it could not sustain the gains made during the week and has fell sharply from the weekly high The weekly breakout level at continues to bode very well for the currency as even though in the mid week a break below the same could not be sustained and a higher closing above the same has led the currency to witness buyers.though from a price action perspective the cable currency continues to trade volatile as we have witnessed a series of higher highs and lower lows depicting a broadening formation on the weekly chart.however the bias has continued to remain positive for the currency.however from an oscillator perspective the relative strength index hasn t made a new high in line with the price action suggesting that the upside momentum is fading and hence the currency witness selling at higher levels. While we believe only on a weekly closing below the breakout point at could propel the currency lower until then we could continue to remain positive in the cable currency as also it is above the 20 day exponential moving average level on the daily charts suggesting no reversal in the prevailing short term up trend. However considering the aforementioned factors we could expect a sideways view for the cable currency and expect it to trade in a of levels. Currency Research Desk Mail Us at currencyresearch@karvy.com 7

8 USD/JPY CURRENCY CONTRACT S2 S1 CLOSE R1 R2 RECOMMENDATION USDJPY JPYINR-MCX-SX DEC BUY AT TP SL BELOW SELL AT TP SL JPYINR-NSE DEC SELL AT TP SL Fundamental Review Last week, the Japanese yen fell to a five-year low of versus the dollar after the Japanese economic grew at the rate of 0.30% lower than the last quarter. The decline in exports, lower capital investment and decelerating consumer spending has factored in Japanese third quarter GDP growth rate. Moreover, the economic data released from the US economy has turned out better from last few weeks supported the investor s sentiment and also bolstered Dollar index against the majors. Increase in Japanese current account deficit along with lower business spending also weighed on the Japanese yen. Other economic releases also remained subdued last week and supported downside in yen. Japanese equity indices especially Topix and Nikkei index settled on a marginally stronger note at and , up by 0.25%, 0.65% respectively due to weakening Japanese yen. MCX-SX Contract OPEN HIGH LOW CLOSE % CHANGE VOLUME % CHANGE OPEN INTEREST % CHANGE Dec % NA NA NA Jan % 857 NA NA NA Feb % NA NA NA Economic data for week ahead Date Time Country Event Period Survey Prior 12/24/ :30 JN Bank of Japan's Monthly Eco Report Dec /26/ :30 JN Housing Starts YoY Nov 9.20% 7.10% 12/26/ :30 JN Annualized Housing Starts Nov 0.989M 1.037M 12/26/ :30 JN Construction Orders YoY Nov % 12/26/ :30 JN Small Business Confidence Dec /27/ :00 JN Overall Household Spending YoY Nov 1.80% 0.90% 12/27/ :00 JN Jobless Rate Nov 3.90% 4.00% 12/27/ :00 JN Job-To-Applicant Ratio Nov /27/ :00 JN Natl CPI YoY Nov 1.50% 1.10% 12/27/ :20 JN Industrial Production MoM Nov P 0.40% 1.00% 12/27/ :20 JN Industrial Production YoY Nov P 5.40% 5.40% 12/27/ :20 JN Retail Trade YoY Nov 2.90% 2.30% Currency Research Desk Mail Us at currencyresearch@karvy.com 8

9 12/27/ :20 JN Retail Sales MoM Nov 1.00% -1.00% 12/27/ :20 JN Large Retailers' Sales Nov 0.80% -0.40% 12/27/ :30 JN Vehicle Production YoY Nov % Fundamental Outlook From Japan we have Bank of Japan`s governor speech on 25th December where in the comments would be closely watched by the markets. We expect the BOJ`s governor to maintain his dovish stance and continue with the monetary stimulus to prop up the economy. We have the important Housing starts which is expected to increase on the back of increase in public investment with improvement in the employment and income situations. Japan`s national CPI may increase on the back of sustained monetary stimulus by the central bank backed by increase in public spending. At present the prior CPI number is around 1.1%.Overall the CPI seems to be rising as per the expectations of the central bank. Apart from the above data we also have industrial production and retail sales data. Industrial production has been increasing marginally and is expected to improve on the back of sustained economic stimulus from the B.O.J. Retail sales in Japan continues to show improvement and the data has been coming positive lately showing encouraging signs that Prime minister Shinzo Abe`s pro-growth policies have lifted the consumer spending. We expect the retail sales to continue their positive trend with the consumers increasing their spending before the sales tax hike which is expected in the month of April next year. Overall we expect the Japansese yen to trade down in the coming week as the post FOMC meeting decision to taper its monthly asset purchase program by $75 billion might support the dollar to trade on a stronger note which might put pressure on the yen. TECHNICAL SNAPSHOT: As of Friday 5.30 PM IST the Japanese yen is seen trading at the level, a gain of 1.22% over the prior week. Earlier it tested a low of and then surged sharply higher to test a high of This has been the 8th successive week when the yen has witnessed a new high. Despite the strong negative relative strength index divergence the price have surged higher above the prior high at However being the 8th week of successive rise we may expect a correction in the ongoing trend as also on the daily chart the price could be headed towards an overbought zone reflected by the relative strength index which is nearing the 70 mark. Though we believe a fall to the levels could be utilized to buy the Japanese yen as the price momentum continues to remain strong. Overall we continue to remain bullish on the yen and suggest to buy on declines Currency Research Desk Mail Us at currencyresearch@karvy.com 9

10 Prepared by:- Aurobinda Prasad Research Head Rashmi Ranjita Sahoo Fundamental Analyst Srikanth Rayipati -Technical Analyst Disclaimer The information and views presented in this report are prepared by Karvy Stock Broking Limited. The information contained herein is based on our analysis and up on sources that we consider reliable. We, however, do not vouch for the accuracy or the completeness thereof. This material is for personal information and we are not responsible for any loss incurred based upon it. The investments discussed or recommended in this report may not be suitable for all investors. Investors must make their own investment decisions based on their specific investment objectives and financial position and using such independent advice, as they believe necessary. While acting upon any information or analysis mentioned in this report, investors may please note that neither Karvy nor any person connected with any associated companies of Karvy accepts any liability arising from the use of this information and views mentioned in this document. The author, directors and other employees of Karvy and its affiliates may hold long or short positions in the abovementioned companies from time to time. Every employee of Karvy and its associated companies are required to disclose their individual stock holdings and details of trades, if any, that they undertake. The team rendering corporate analysis and investment recommendations are restricted in purchasing/selling of shares or other securities till such a time this recommendation has either been displayed or has been forwarded to clients of Karvy.All employees are further restricted to place orders only through Karvy Stock Broking Ltd. Currency Research Desk Mail Us at currencyresearch@karvy.com 10