Currency Research Desk

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1 Currency weekly 29 July 2013 Global economic review Last week, the global equity markets were on a marginally INDICES LAST 1 week ago % Change positive note, supported by US equities and to some extent, NIFTY Asian stocks. The US housing sector remained weak along with the Fed's manufacturing index. Durable goods orders have SENSEX improved while jobless claim numbers increased. This had a NASDAQ mixed impact on the dollar. European equities remained weak DOW JONES INDUSTRIAL whereas UK stocks improved. European and German PMI SHANGHAI COMPOSITE numbers have improved more than expected, along with NIKKIE German IFO numbers which supported gains in the euro. HANGSENG However, weak M3 money supply and the negative import price index limited the gains in the euro last week. The Greek FTSE Index Parliament also completed the formalities for receiving the CROSS LAST 1 week ago % Change bailout fund,which created optimism in the market. The RBI also EURUSD increased its minimum cash reserve ratio (CRR) requirement for GBPUSD banks from 70% to 99% to maintain a sufficient amount of money for use in acute shortages and to arrest a slide in the USDJPY currency. The RBI measures have made liquidity conditions tight USDCAD in the markets due to which the domestic stock markets, USDCHF including the Sensex and Nifty fell 2.37% and 1.99%. The dollarrupee NDF offshore contracts appreciated 0.79%, which USDSEK DOLLAR INDEX supported gains in the rupee. At the global front, Japanese equities lost more than 3% due to yen gaining strength while the Chinese stocks market continued their second week of gains. Overall, the global economy remain mixed due to mixed economic indicators and slightly positive equity markets Dollar Index Currency S2 S1 Close R1 R2 Recommendation Dollar Index SELL at TP SL Above TECHNICALSNAPSHOT:- The dollar ended the week lower at 81.65, shedding more than 1.18%. It has been on a falling trajectory for the past 3 weeks. Earlier in the week, it reached a high of and then reached a low of during the latter part of the week. The weekly candlestick pattern shows a bearish belt-hold formation, suggesting that the sellers dominated the week right from the beginning. Sustained trade below the 20 day EMA which is at now has led to further weakness in the dollar. The Relative strength index is at 47, suggesting that further weakness could be seen if it manages to sustain below the 50 mark. The dollar could approach the lower end of the upsloping trading channel on sustained weakness, which is closer to 81 which also coincides with the lower end of the Bollinger band. Hence, there is a cluster of evidence that the dollar could find strong support if it approaches the 81 mark. The supports are at followed by The resistances are at followed by Overall, we expect the dollar to trade in a range of for the week and recommend selling on rises. 1

2 USD/INR CURRENCY CONTRACT S2 S1 CLOSE R1 R2 RECOMMENDATION USDINR-MCX-SX Aug SELL at TP ,40 SL Above USDINR-NSE Aug SELL at TP SL Above Fundamental Review Last week, the rupee completed its third weekly gain against the dollar (up 0.52%), the longest gaining streak since February. It settled at from the previous week's close of The rupee strengthened due to the central bank tightening the supply of cash by taking a wide set of measures, including increasing the Bank rate and Marginal Standing Facility (MSF) by 200basis points to 10.25%. The RBI also increased the minimum cash reserve balance (CRR) requirement for banks from 70% to 99% to maintain a sufficient amount of money at the RBI and to use it in case of an acute shortage of money to arrest a slide in the currency. The RBI measures have created conditions of tight liquidity in the market, due to which the domestic stock markets including the Sensex and Nifty fell 2.37% and 1.99% respectively. The dollar-rupee NDF offshore contracts appreciated 0.79%, which supported gains in the rupee. At the global front, Japanese equities lost more than 3% due to the yen gaining strength while the Chinese stock markets continued a second week of gains. The euro appreciated 1.03% against the dollar, supported by better economic indicators data and a weakened dollar index. The dollar index fell 1.15% against the majors and settled at on concern that the Fed may continue its asset purchase program. MCX-SX Jul % % % Aug % % % Sep % % % NSE Jul % % % Aug % % % Sep % % % Fundamental Outlook: In the coming week, investors may remain cautious ahead of the Reserve bank of India's policy meet, which may create volatility in the market. The RBI may increase its repo rate in order to maintain the 100bps difference with Marginal Standing Facility rate which is at 10.25%. The RBI's measures might be fruitful for the debt market but may also have a negative impact on the domestic stock markets due to conditions of tight liquidity. This may reflect on the rupee. The difference in the dollar-rupee one-month forward exchange rates between the two markets (onshore and offshore) has narrowed from 2paisa to -20paisa. It indicates declining demand for the dollar, which may lead to the rupee s appreciation in the near-term. At the global front, Japanese equities may remain on a weaker note due to weak economic data expected from the nation as well as the likely appreciation of the yen in the coming week. This might pressurize the domestic indices (Sensex and Nifty) and thereby, could reflect on the rupee. The euro may retreat from its weekly gains on expectations of weak economic releases from Europe and the ECB (European Central Bank) may lead to a continuation of its loose monetary policy. The dollar index may remain under pressure in the coming week on anticipation that the Fed may continue its asset purchase program due to mixed economic data. Overall, we expect the rupee to stay on a stronger note but, concerns of tight liquidity may affect the domestic indices and limit gains in the rupee. 2

3 Economic data for week ahead Date Time Region Event Period Survey Prior 07/30/ :00 IN RBI Cash Reserve Ratio Jul % 4.00% 07/30/ :00 IN RBI Repurchase Rate Jul % 7.25% 07/30/ :00 IN RBI Reverse Repo Rate Jul % 6.25% 07/31/ :00 IN Fiscal Deficit INR Crore Jun /01/ :30 IN HSBC/Markit Manufacturing PMI Jul TECHNICAL SNAPSHOT:- The Indian rupee fell for the third consecutive week to end at levels, shedding 0.60 % Earlier in the week it reached a high of levels and then drifted sharply lower during the last session of the week to reach a low of levels. The Weekly candlestick depicts a spinning top formation suggesting a balance between the buyers and sellers.the Weekly relative strength index which has been on the falling mode has drifted to the 67 mark from its prior 70 mark Again on the daily chart the Rupee has closed for the third consecutive day below the 20 day exponential moving average which is now at 59.38,suggesting weakness could be seen if unable to breach that level.also we could clearly see the bearish pennant breakdown on the daily chart which could further augur for a bearish bias for the Rupee in the week to come. Going by the Fibonnaci projections the Rupee for a brief moment had sharply slipped below the 61.8% retracement level (58.90 ) of its swing range( ) suggesting prevailing weakness could continue on a sustained trade below the same. The Support is at followed by The Resistance is at followed by levels. Overall we could expect the Rupee to trade in a range of levels for the week and recommend to sell on rises. Recommendation: USD/INR-AUG-MCX-SX/NSE : - Sell at TP Then SL Above

4 EUR/USD CURRENCY CONTRACT S2 S1 CLOSE R1 R2 RECOMMENDATION EURUSD BUY at TP SL Below EURINR-MCX-SX Aug BUY at TP SL Below EURINR-NSE Aug BUY at TP SL Below Fundamental Review Last week, the euro appreciated 1.03% against the dollar and settled at from the previous week's close of The euro strengthened due to the weakness in the dollar index. European stocks declined on concerns of economic recovery faltering. Europe and Germany's PMI numbers have improved more than expected along with German IFO numbers which supported gains in euro. However, weak M3 money supply and negative import price index were limiting the gains in the euro last week. The Greek Parliament has also completed the formalities for receiving the bailout fund which created optimism in the market. MCX-SX Jul % % % Aug % % % Sep % % % NSE Jul % % % Aug % % % Sep % % % Fundamental Outlook In the coming week, the ECB (European Central bank) policy review would be the event to closely watch. The ECB may keep its interest rate at its existing level of 0.50% and maintain a loose monetary policy to support economic growth. The 45 minute press conference by ECB Chief Draghi may create volatility in the market. Europe will release its economic confidence, business climate indicator, industrial confidence, consumer confidence and services confidence data, which are expected to improve and may support the gains in the euro. However, Germany's consumer price index and retail sales may decline due to lower consumption. The euro-zone's unemployment rate is likely to increase, which may pressurize the euro. Overall, we expect the euro to stay on a weaker note for the coming week. Economic data for week ahead Date Time Region Event Period Survey Prior 07/30/ :30 EC Economic Confidence Jul /30/ :30 EC Business Climate Indicator Jul /01/ :25 GE PMI Manufacturing Jul F /01/ :30 EC PMI Manufacturing Jul F /01/ :15 EC ECB Announces Interest Rates Aug % /01/ :15 EC ECB Deposit Facility Rate Aug % % /02/ :30 EC PPI MoM Jun 0.00% %

5 TECHNICAL SNAPSHOT- The Euro ended the week higher at , a gain of more than 1 % over the prior week. Earlier in the week it reached a low of and then surged sharply to reach a high of levels. The Weekly candlestick depicts a bullish marubozu formation suggesting that the bulls dominated the week throughout. Another important observation is the fact that the Euro is on the verge of testing its descending triangle resistance which is closer to levels, further suggesting that the gains in the coming week could be limited owing to the aforementioned factor.however the momentum indicator Relative strength index is at the 55 mark suggesting there could be a scope for further upside momentum.going by the Fibonacci projection the pair is comfortably trading above its 61.8% levels levels,suggesting a strong upside momentum is still prevailing in the Euro.A sustained trade above could propel the Euro to test its 100% retracement level at The Support is at followed by The Resistance is at followed by Overall we could expect the Euro to trade in a range of levels for the week and recommend buying on a throwback. 5

6 GBP/USD CURRENCY CONTRACT S2 S1 CLOSE R1 R2 RECOMMENDATION GBPUSD Buy at TP SL Below GBPINR-MCX-SX Aug Buy at TP SL Below GBPINR-NSE Aug Buy at TP SL Below Fundamental Review : Last week, the pound appreciated 0.75% against the dollar and settled at from the previous close of The pound strengthened due to the weakness in the dollar index and improving the economic growth rate. Jon Cunliffe was appointed as a new Governor for the Bank of England, which created optimism in the market last week. The UK service data has also improved in the month of May due to increasing consumption. The UK economy expanded 0.6% in the second quarter after growing 0.3% in the previous three months MCX-SX Jul % % % Aug % % % Sep % % % NSE Jul % % % Aug % % % Sep % % % Economic data for week ahead: Date Time Region Event Period Survey Prior 08/01/ :00 UK PMI Manufacturing Jul /01/ :30 UK Bank of England Bank Rate Aug % 0.50% 08/01/ :30 UK BOE Asset Purchase Target Aug 375B 375B 08/02/ :00 UK PMI Construction Jul Fundamental Outlook In the coming week, the market will await the Bank of England's policy meet. The BOE may keep its benchmark rate unchanged and maintain its 375bn pound of asset purchase program to support the economy. The chief may take any forward decision to support the financial system of the nation. The UK's PMI manufacturing and construction data may improve due to the improving economic conditions and consumption pattern of the country. The net consumer credit is also likely to improve. Overall, we expect the pound to remain strong in the coming week. 6

7 TECHNICAL SNAPSHOT The cable ended the week higher for the third consecutive week at , a gain of over 0.7 %.Earlier in the week it reached a low of and then during the latter part of the week reached a high of levels.going by the Fibonacci projections the Cable has retraced 61.8% Fibonacci level (1.5393) of its swing range ( ).This 61.8 % Fibonacci level could act as a strong resistance for the cable in the short term.however a sustained trade above the same could further propel it to reach its recent high levels.on the Daily chart the Cable been witnessing a broadening pattern being formed depicting a combination of both higher highs and higher low.owing to which we could witness some volatility ahead.however the cable could continue to trade higher as long as it trades above levels which is also the 20 day exponential moving average. The Support is at followed by The Resistance is at followed by Overall we could expect the cable to trade in a range of levels for the week and recommend to buy on declines. 7

8 USD/JPY CURRENCY CONTRACT S2 S1 CLOSE R1 R2 RECOMMENDATION USDJPY SELL at TP SL ABOVE JPYINR-MCX-SX Aug BUY at TP SL Below JPYINR-NSE Aug BUY at TP SL Below Fundamental Review Last week, the yen appreciated 2.42% against the dollar and settled at from the previous week's close of The yen strengthened after Japanese equities declined on a weekly basis and the dollar weakened. The Nikkei and Topix indices fell around 3% last week. Japan s Prime Minister Shinzo Abe won the upper house seat and promised to continue his economic growth strategy. Japan s trade balance has improved from last month's figure,which supported gains in the yen. Japan's foreign bond buying program and stocks continued their rise this week, which also supported the yen. MCX-SX Jul % % % Aug % % % Sep % % % NSE Jul % % % Aug % % % Sep % % % Economic data for week ahead Date Time Region Event Period Survey Prior 07/29/ :20 JN Retail Sales MoM Jun 0.80% 1.50% 07/30/ :20 JN Industrial Production MoM Jun P -1.50% 1.90% 07/30/ :30 JN Small Business Confidence Jul /31/ :30 JN Construction Orders YoY Jun % 08/01/ :30 JN Vehicle Sales YoY Jul % Fundamental Outlook The yen may further appreciate in the coming week due to equity markets remaining under pressure. Japan will release its retail sales, industrial production, small business confidence, construction output, vehicle sales and official reserve assets. The retail sales and industrial production data are expected to decline due to heavy rainfall and surging energy costs, which caused a slump in consumer demand in the month of June. However, small business confidence is likely to improve along with construction output data. Vehicle sales fell in June, backed by the territorial dispute with China where Toyota lost some of its market share. The official reserve assets may decline in the month of July. Overall, we recommend sellijg the pair. 8

9 TECHNICAL SNAPSHOT: The yen ended the week lower at 98.22, shedding more than 2% over the week. Earlier in the week, it reached a high of and then drifted sharply lower to reach The two-bar weekly reversal which we mentioned 2 weeks ago has come into play as expected. The weekly candlestick depicts a bearish belt-hold formation, suggesting that the bears had the upper hand throughout the week.the yen has also drifted sharply below its 20-day EMA level which is at 99.45, suggesting a reversal in the prevailing uptrend. On the weekly chart, the yen has also breached sharply below the up-sloping trend-line, suggesting that weakness could prevail and the yen could retrace further in the comingdays. The supports are at followed by The resistances are at followed by Overall, we expect the yen to trade in a range of for the week and recommend selling on rises. Major economic events for the week Date Time Region Event Period Survey Prior JUL CH Leading Index Jun /29/ :20 JN Retail Sales MoM Jun 0.80% 1.50% 07/29/ :00 UK Net Consumer Credit Jun 0.7B 0.7B 07/29/ :30 US Pending Home Sales MoM Jun -1.00% 6.70% 07/29/ :00 US Dallas Fed Manf. Activity Jul /30/ :20 JN Industrial Production MoM Jun P -1.50% 1.90% 07/30/ :30 JN Small Business Confidence Jul /30/ :00 IN RBI Cash Reserve Ratio Jul % 4.00% 07/30/ :00 IN RBI Repurchase Rate Jul % 7.25% 07/30/ :00 IN RBI Reverse Repo Rate Jul % 6.25% 07/30/ :30 EC Economic Confidence Jul /30/ :30 EC Business Climate Indicator Jul /30/ :30 EC Industrial Confidence Jul /30/ :30 EC Consumer Confidence Jul F /30/ :30 EC Services Confidence Jul /30/ :30 GE CPI MoM Jul P 0.30% 0.10% 07/30/ :30 US Consumer Confidence Index Jul /31/ :30 JN Construction Orders YoY Jun % 9

10 07/31/ :30 GE Retail Sales MoM Jun 0.20% 0.80% 07/31/ :25 GE Unemployment Rate Jul 6.80% 6.80% 07/31/ :30 EC Unemployment Rate Jun 12.20% 12.10% 07/31/ :00 IN Fiscal Deficit INR Crore Jun /31/ :30 US MBA Mortgage Applications Jul % 07/31/ :45 US ADP Employment Change Jul 180K 188K 07/31/ :00 US GDP Annualized QoQ 2Q A 1.00% 1.80% 07/31/ :00 US Personal Consumption 2Q A 1.60% 2.60% 07/31/ :00 US GDP Price Index 2Q A 1.00% 1.20% 07/31/ :15 US Chicago Purchasing Manager Jul /31/ :30 US FOMC Rate Decision Jul % 0.25% 08/02/ :00 US Change in Nonfarm Payrolls Jul 185K 195K 08/01/ :30 UK Bank of England Bank Rate Aug % 0.50% 08/01/ :30 UK BOE Asset Purchase Target Aug 375B 375B 08/01/ :15 EC ECB Announces Interest Rates Aug % 0.50% 08/01/ :15 EC ECB Deposit Facility Rate Aug % 0.00% 08/02/ :00 US Change in Private Payrolls Jul 187K 202K 08/02/ :00 US Change in Manufact. Payrolls Jul 0K -6K 08/02/ :00 US Unemployment Rate Jul 7.50% 7.60% 08/02/ :00 US Personal Income Jun 0.40% 0.50% 08/02/ :00 US Personal Spending Jun 0.50% 0.30% Prepared by:- Aurobinda Prasad (aurobinda@karvy.com) Research Head Rashmi Ranjita Sahoo (rashmi.sahoo@karvy.com) Fundamental Analyst Srikanth Rayipati (srikanth.rayipati@karvy.com) -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 above-mentioned 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. 10