January 5, 2009 USD/INR

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1 USD/INR January 5, 2009 The complete Ex-Yen, Asian currencies declined in the last week as data from the capital markets regulator showed funds based abroad sold more stocks than they bought since beginning of The rupee is weakening and expected to fall further along with other Asian currencies because of economic news across the region continues to be very bad. Rupee fell by 0.6 per cent in the last week to with settling at per dollar in Mumbai. The rupee touched 49.13, the weakest since December 24 and the second worst performance in Asia. As far as the country fundamentals are concern, India released its trade balance data which turned out to be deficit where in exports declined for a second straight month in November as the global recession damped demand for the nation s goods, deepening a slowdown. Exports dropped 9.9 percent to $11.5 billion from a year earlier after contracting 12.1 percent in October, the first decline in seven years, according to the government. The current-account shortfall widened to a record $12.5 billion in the three months ended Sept. 30. Stimulatingly, the Reserve Bank of India cut its benchmark overnight lending rate, or repurchase rate, to 5.5 percent from 6.5 percent. It also cut the reverse-repurchase rate, or the rate at which drains money from the banking system, by a percentage point to 4 percent, making it less attractive for lenders to park their money with the central bank. Policy makers also raised the overseas investment limit in local corporate bonds to $15 billion from $6 billion to help increase capital inflows and stem rupee losses. India unveiled a second stimulus package in a month, lifting restrictions on overseas borrowings and recapitalization of state-run banks. The rupee also fell as offshore forward contracts were trading higher than the on shore market leaving a sign of weakness to the spot rupee. Moreover, the international crude oil prices went up to 46.50, showed 22 per cent rise in the prices from the previous week, also keeping pressure on the domestic rupee as India import maximum crude oil from the overseas markets. The Indian rupee traded sideways to lower in the last week and after making a high of it settled lower at forming a shooting star pattern in the weekly chart. The properties of shooting star says a short term reversal to the prices, thereby in rupee, the prices are likely to come down. The immediate supports can be seen at levels. Only on break of the same it may test (previous swing high as well as 20-weeks EMA levels). Likewise, on the higher side the resistances can be anticipated at and then which is the previous week s high. According to the weekly chart, the market has posted a lower closing below 10-weeks EMA, which signify a down trend to be seen in the near term. Moreover, the momentum indicator RSI-14 is treading at 0.60 leaving a sideways view for the rupee. We expect rupee to trade sideways to lower for the week ahead.

2 EUR/USD Spot euro remained volatile unexpectedly as it moved in the range of $ $ levels, despite of thin market activity. The euro declined against the dollar, first time since November, as further evidence of weakening economy prompted investors to sell the currency against the dollar. Speculation that European Central Bank will cut its target refinancing rate from 2.5%, increased after a European manufacturing report indicated the recession is deepening. The index of European manufacturing, based on a survey of purchasing managers by Markit Economics, fell to 33.9 in December, the lowest since the start of the data in A reading below 50 indicates a contraction. The European Central Bank s (ECB) benchmark refinancing rate is at 2.5%, while the U.S. federal-funds rate is zero to 0.25 percent. However the currency witnessed upward movement after US consumer confidence index fell to 41-year low of 38, while ISM manufacturing activity dropped to 28-year low of 32.4 levels. The dollar also fell due to mounting geopolitical tensions in Middle East, rising concerns that oil exports to US may be curbed. On the whole, euro declined by 0.76% to end the week at $ levels. Week ahead, Euro-zone GDP, unemployment, consumer confidence and inflation data will be crucial to watch for. Weak economic activity is likely to increase speculation of lower lending rates in the region, thereby pressurizing euro to move lower. However declining US ISM services index combined with steep rise in jobless rates, losses will be limited to certain extent. Overall euro is expected to be sideways to lower. The currency pair traded lower in the last week and moved in the range of $ to $ with settling the week at $ The closing of the chart has turned into a bearish mode as the weekly candle has turned bearish as well as the prices have breached 50 per cent retracement of the major downward rally which says market to correct in the near term. At present, market has posted a closing below 50% retracement and likely to test 38.2% which is at levels. However, on break of the same it may test $ levels. Likewise, on the higher side the resistances can be seen at $ The momentum indicator RSI-14 is treading at 0.50 and expects to fall which may help the currency to trade lower. We recommend taking short positions in EURO/USD pair for the week.

3 GBP/USD The cross recorded losses of 0.22%, touching its lowest level in almost seven years as speculation mounted the recession in the U.K. Mortgage approvals dropped to the weakest level since at least 1999 and manufacturing activity shrank in the region, taking the currency to the third straight week of losses. The Bank of England said lenders granted 27,000 loans to buy homes in November, down from a revised 31,000 a month before and below the 32,000 estimate in a Bloomberg survey. Manufacturing contracted for an eighth month in December as the economic slump deepened. An index based on a survey of about 700 manufacturing companies by the Chartered Institute of Purchasing and Supply was 34.9, close to the record low of 34.5 in November. Economists in a Bloomberg survey predicted A reading below 50 indicates contraction. Meanwhile the pound was the second-worst performer against the dollar among its most actively traded peers, sinking the most since at least 1972, as policy makers lowered the rate 3.5 percentage points to 2%. Week ahead, in wake of falling industrial, construction and home activity combined with expected 50 basis points cut in interest rates, we expect pound to trade lower against the dollar. The currency pair traded sideways to lower in the last trading session and moved in the range of $ to $ with settling the week at $ levels. Though the prices traded sideways but the overall trend remains bearish as in the weekly chart a descending triangle pattern is seen forming which could extend the fall as a continuation of the trend. The next best support can be seen at $ and breach of the same it may test $ levels. Likewise, on the higher side the resistances can be seen at $ levels. Moreover, the prices are trading below the short term averages signaling prices to trade lower in the short term. We expect pound to trade lower and recommend taking short positions for the week.

4 USD/JPY Japanese yen moved to a three-week low against the dollar as a stocks rally and an increase in US treasury yields from record lows encouraged investors to buy dollar-denominated assets. The Dow Jones Industrial Average Index surged by over 6% this week after government extended measures to auto companies, reducing concerns of further job and financial losses. The yen also declined as inflation slowed and industrial production slumped in the region, adding to bets the central bank will pump cash into the economy at a faster pace. Earlier in the week, the dollar posted its biggest annual decline against the yen in more than two decades on signs the U.S. economy is sinking deeper into recession and $1 trillion in credit-market losses worldwide prompted investors to sell higher-yielding assets funded with yen loans. The yen was the best performer of 2008 among the world s 16 most-active currencies against the dollar. Week ahead, we expect yen to trade sideways to lower against the dollar amid firmer equity stocks and deepening recession in the region. The prices of the currency pair traded higher in the last week as it moved from to with settling the week at levels. Market is making a higher correction as the prices were trading near the oversold phase. As the per the Fibonacci projection, market has just breached 38.2% projection level and closing above it may signal market to move further up. The immediate resistances can be seen at and then levels. Likewise, the supports can be seen at levels. We expect USD/JPY to trade higher and recommend taking long positions for the pair.

5 Weekly Quotes Majors EURO/USD GBP/USD CHF/USD USD/JPY AUD/USD CAD/USD Asia Pacific USD/INR USD/SGD USD/HKD USD/NZD USD/THB USD/IDR USD/KRW USD/TWD European USD/KKK USD/NOK USD/SEK USD/ISK USD/RUB USD/CZK USD/PLN Latin American USD/MXN USD/VEB USD/CLP USD/BRL USD/ARS USD/COP USD/UYU Africa USD/ZAR USD/EGP USD/KES USD/MUR USD/NGN USD/SDD

6 Upcoming Economic Events Date Time Region Event Period Survey Prior 01/05/ :30 JN Vehicle Sales (YoY) DEC % 01/05/ :00 UK PMI Construction DEC /05/ :00 EC Sentix Investor Confidence JAN /05/ :30 US Construction Spending MoM NOV -1.30% -1.20% 01/06/2009 US Total Vehicle Sales DEC 10.0M 10.2M 01/06/ :30 UK Nat'wide House prices sa (MoM) DEC -1.50% -0.40% 01/06/ :30 EC PMI Services DEC F /06/ :30 EC PMI Composite DEC F /06/ :00 UK PMI Services DEC /06/ :30 EC Euro-Zone CPI Estimate (YoY) DEC 1.80% 2.10% 01/06/ :30 US ISM Non-Manf. Composite DEC /06/ :30 US Factory Orders NOV -2.30% -5.10% 01/06/ :30 US Pending Home Sales MoM NOV -1.00% -0.70% 01/07/ :30 US Minutes of Dec. 16 FOMC Meeting 7-Jan 01/07/ :31 UK Nationwide Consumer Confidence DEC /07/ :30 EC Euro-Zone PPI (MoM) NOV -0.90% -0.80% 01/07/ :45 US ADP Employment Change DEC -478K -250K 01/08/ :30 EC Euro-Zone Unemployment Rate NOV 7.80% 7.70% 01/08/ :30 EC Euro-Zone GDP s.a. (QoQ) 3Q F -0.20% -0.20% 01/08/ :30 EC Euro-Zone GDP s.a. (YoY) 3Q F 0.60% 0.60% 01/08/ :30 EC Euro-Zone Household Cons (QoQ) 3Q F % 01/08/ :30 EC Business Climate Indicator DEC /8/ :30 EC Euro-Zone Govt Expend (QoQ) 3Q F % 01/08/ :30 EC Euro-Zone Consumer Confidence DEC /08/ :30 EC Euro-Zone Economic Confidence DEC /08/ :30 EC Euro-Zone Indust. Confidence DEC /08/ :30 EC Euro-Zone Services Confidence DEC /08/ :30 UK BOE ANNOUNCES RATES 8-Jan 1.50% 2.00% 01/08/ :00 US Initial Jobless Claims 4-Jan 543K 492K 01/09/ :30 US Consumer Credit NOV $0.1B -$3.5B 01/09/ :30 JN Leading Index CI NOV P /09/ :00 IN Wholesale Price Index YoY 27-Dec % 01/09/ :00 UK PPI Input NSA (MoM) DEC -2.00% -3.30% 01/09/ :00 UK PPI Output n.s.a. (MoM) DEC -0.60% -0.70% 01/09/ :00 UK Industrial Production (MoM) NOV -0.60% -1.70% 01/09/ :00 UK Manufacturing Production (MoM) NOV -0.60% -1.40% 01/09/ :30 EC Euro-Zone Retail Sales (MoM) NOV -0.10% -0.80% 01/09/ :00 US Change in Nonfarm Payrolls DEC -500K -533K 01/09/ :00 US Unemployment Rate DEC 7.00% 6.70% 01/09/ :00 US Change in Manufact. Payrolls DEC -103K -85K 01/09/ :30 US Wholesale Inventories NOV -0.70% -1.10%

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