Currency Research Desk

Transcription

1 Currency weekly 16 Sept 2013 Global economic review Last week, the global equity and commodity markets swung INDICES LAST 1 week ago % Change between gains and losses responding to fading Syria concerns, NIFTY weak Dollar index and on the speculation of Fed may taper the SENSEX asset purchase program. The declined in value of Dollar index NASDAQ supported gains in major currencies including euro, pound, DOW JONES INDUSTRIAL Australian dollar and Canadian dollar. In major economic SHANGHAI COMPOSITE releases, US data in the form of consumer credit, small business NIKKIE optimism and import price index remained favorable for the US HANGSENG equity markets and Dollar. However, increased budget deficit FTSE Index in the US limited the gains in American equities and USD. From CROSS LAST 1 week ago % Change the European territory, the shared currency euro surged 0.88% EURUSD against the dollar and settling at due to weak Dollar GBPUSD index. The euro-zone Sentix investor confidence number has USDJPY increased to 6.5 in September supported gains in euro. USDCAD However, consumer price index, wholesale price index and USDCHF industrial production data remained weak limited the gains in USDSEK euro. Coming to Asian boundaries, most of the Asian equities DOLLAR INDEX rallied for the third consecutive week and posted positive close on the optimism of Chinese economy shows sign of recovery and fading concern over Syria war. The emerging market currencies also closed on a stronger note due to weak Dollar index. At the domestic front, Sensex and Nifty index surged more than 3% backed by increasing foreign capital inflow in the local market. India s higher industrial production in August, after contracting for the last two months also supported gains in Indian equity markets as well as in rupee. Dollar Index Currency S2 S1 Close R1 R2 Recommendation Dollar Index Sell at TP SL Above TECHNICALSNAPSHOT:- The Greenback ended the week lower at 81.45, shedding over 0.80% The week gone by was clearly dominated by the sellers. Earlier in the week it reached a high of and then drifted lower to test a low of during the latter end of the week. pushing it back to its lower end support of the trend trading channel. Thus bringing it back to a very crucial point as it would try to witness a pullback from the support level which could be utilized to sell. The weekly candlestick depicts a bearish marubozu formation, the implications of which could be seen in the forthcoming week. Also considering that the cable has fallen below the major short term moving averages(8,13,21) and sustained below the same could possibly propel the pair further lower in the coming week. Overall we could expect the greenback to trade in a range of levels for the week and recommend selling on rises. 1

2 USD/INR CURRENCY CONTRACT S2 S1 CLOSE R1 R2 RECOMMENDATION USDINR-MCX-SX Sep Sell at TP SL Above USDINR-NSE Sep Sell at TP SL Above Fundamental Review The rupee had its biggest weekly gain in six months of FY after the new RBI (Reserve Bank of India) Governor announced a plan to strengthen the financial industry and spur dollar supply. India s industrial production climbed 2.6% in July after contracting for two consecutive months and the consumer price index also slowed to 9.52%, down from the previous month. The decision of two central banks (Bank of Japan and reserve Bank of India) to involve in a currency swap (exchange of yen and rupee at certain maturity and price) worth $15 billion and keep up a constant usage of the dollar in bilateral trade has supported gains in the rupee. The Sensex and Nifty index surged 2.40% and 3%, settling at and respectively due to increasing foreign capital inflow into the Indian economy. At the global front, most of the Asian equities and emerging market currencies posted positive weekly closes, backed by fading concerns over the Syrian crisis and increased investor sentiments. Chinese industrial production and retail sales both increased at a faster pace, supporting gains in Chinese as well as other Asian equities. This supported gains in the domestic indices and the rupee as well. The euro settled on a positive note at , up by 0.88% on the back of improving consumer sentiments, extending the gains in the rupee. The dollar plunged 0.84% against the majors due to subdued economic releases and concerns over the US Federal Reserve's asset purchase program. MCX-SX Sep % % % Oct % % % Nov % % % NSE Sep % % % Oct % % % Nov % % % Fundamental Outlook: The market is looking very crucial for the coming week. The two days meeting of US central Bank on17th and 18th of September for giving decision on whether Fed will continue its $85B of asset purchase program or not may create volatility in the financial markets. The Reserve bank of India will also announce its monetary policy decision on 20th of September. The Chief of the Prime Minister's Economic Advisory Council (PMEAC) C. Ragarajan said that there are major challenges before RBI to control inflation and maintain price stability in the economy. Therefore, the RBI is likely to keep constant its benchmark rate. PMEAC chief also stated that RBI may sale $9B bond into the market to arrest the currency slide. India will release its inflation rate which is likely to increase at a slower pace. The optimism over increase in foreign capital inflows may also support the rupee. However, the spread difference between two markets (offshore and onshore) of dollar-rupee has widened from -43 paisa to 14 paisa may pressurize the rupee. At the global front, China foreign direct investment is likely to grow at a slower and may support the gains in Chinese equity markets as well as Asian peers. The euro may trade on a marginally positive note in the coming week. Consecutively, the EU financial Minister and Central bankers conclude their discussion on tax evasion and banking union. This may support the euro while the concern over Germany election could limit the gains. However, the string of economic data from the Europe and Germany may remain favorable for the shared currency euro. The Dollar index may remain volatile on the anticipation of Federal Reserve asset purchase decision. Overall we expect the rupee to trade on a stronger note against the dollar. 2

3 Economic data for week ahead Date Time Region Event Period Survey Prior 09/16/ :00 IN Wholesale Prices YoY Aug 5.70% 5.79% 09/20/ :00 IN RBI Cash Reserve Ratio Sep % 09/20/ :00 IN RBI Repurchase Rate Sep % 09/20/ :00 IN RBI Reverse Repo Rate Sep % TECHNICAL SNAPSHOT:- The Indian rupee ended lower this week at the level, shedding about 4 % over the week gone by. Earlier in the week it opened at and then drifted sharply lower to reach a low of levels during the penultimate day of the week. On the weekly chart we could clearly see an evening star formation at the top, the bearish implications of which could be seen in the forthcoming week. On the daily chart a sustained trade below the major short term moving averages namely (5,8,13,21) which are clustered around the zone could further propel the rupee lower in the coming day s. Going by the Fibonacci projection s the rupee is on the verge of testing its 61.8% retracement level which is at of the swing range ( ). Also that the 50 day exponential moving average is at could provide some support to the rupee if it approaches those levels. The steep correction from the recent high to hasn t seen any meaningful pullback.hence a correction back to the aforementioned support levels could be followed by a higher pullback. Overall we could expect the Indian rupee to trade in a range of to levels for the week and recommend selling on rises. Recommendation: RUPEE (SPOT)- Sell at TP SL Above USD-INR-SEP-MCX-SX-NSE- Sell at TP SL Above

4 EUR/USD CURRENCY CONTRACT S2 S1 CLOSE R1 R2 RECOMMENDATION EURUSD Buy at TP SL Below EURINR-MCX-SX Sep Sell at TP SL Above EURINR-NSE Sep Sell at TP SL Above Fundamental Review Last week, euro surged 0.88% against the dollar and settled at from the previous close of , due to weakening Dollar index. The easing tension over Syria war supported gains in equities market, CAC index rose 1.61% and DAX index surged 2.82% respectively. Europe Sentix investor confidence increased to 6.5, up from the last month. Germany wholesale price index declined along with weak Europe industrial production data which limited the gains in euro. MCX-SX Sep % % % Oct % % % Nov % % 634 NSE % Sep % % % Oct % % % Nov % % % Fundamental Outlook In the coming week, the investors remain cautious ahead of Federal Reserve bond buying decision and concern over third bailout package to Greece and Slovenia. This may create volatility into the market. The fading concern over Syria and increasing consumer confidence may support the euro. The European Union leaders would conclude their discussion on banking union and tax evasion which may support the euro. At the economic data front, consumer prices index is likely to increase along with improving current account and trade balance may support the euro. The Euro-zone and Germany Zew survey numbers are also expected to improve and may support the gains in euro but weak industrial activity and falling car sales volume could limit the gains in euro. Overall we expect the euro to trade on a marginally stronger note against the dollar Economic data for week ahead Date Time Region Event Period Survey Prior 09/16/ :30 EC CPI MoM Aug 0.10% -0.50% 09/17/ :30 EC EU27 New Car Registrations Aug /17/ :30 EC ECB Current Account SA Jul B 09/17/ :30 EC ZEW Survey Expectations Sep /17/ :30 GE ZEW Survey Current Situation Sep /17/ :30 GE ZEW Survey Expectations Sep /17/ :30 EC Trade Balance SA Jul 15.0B 14.9B 09/18/ :30 EC Construction Output MoM Jul % 09/20/ :30 EC Consumer Confidence Sep A

5 TECHNICAL SNAPSHOT- The Euro ended the week higher at the level, a gain of over 0.80 % over the week gone by. Earlier in the week it tested a low of and then climbed higher to reach a high of and managed to close very near to the high of the week.. The weekly candlestick clearly depicts a bullish engulfing pattern, bullish implications of which could be seen in the forthcoming week. Mentioned in our previous report about the significance of the 200 day exponential moving average (1.3110) on the daily chart has materialized well for the Euro as it was at this level the Euro has found strong support and a sustained trade above the same this week has further propelled the pair to trade higher.the relative strength index which till last week was on the verge of breaking below the 50 level that could have inhibited weakness in the Euro has witnessed a sharp rise from the 51 to 54 levels further suggesting that the price could strengthen further in the near term. The pivotal point for the week is at ,above which the resistance is at followed by The Support is at followed by Overall we could expect the Euro to trade in a range of levels for the week and recommend buying on declines. 5

6 GBP/USD CURRENCY CONTRACT S2 S1 CLOSE R1 R2 RECOMMENDATION GBPUSD Buy at TP SL Below GBPINR-MCX-SX Sep GBPINR-NSE Sep Fundamental Review : Sell at TP SL Above Sell at TP SL Above Last week, the British pound broke 7 month high of , after February 2013 and settled at against the dollar, appreciated 1.55%. The pound strengthened due to weak Dollar index. The UK unemployment rate 7.70%, down from the last month 7.80% supported gains in pound. The ongoing Bank of England forward guidance stipulated that the interest rates will stay at their historical low level until unemployment rate reach 7% and inflation rate 2.5%. The construction output rose unexpectedly by 2.20% in the month of July supported gains in pound. MCX-SX Sep % % % Oct % % % Nov % % % NSE Sep % % % Oct % % % Nov % % % Economic data for week ahead: Date Time Region Event Period Survey Prior 09/16/ :31 UK Rightmove House Prices MoM Sep % 09/17/ :00 UK CPI MoM Aug 0.50% 0.00% 09/17/ :00 UK RPI MoM Aug 0.40% 0.00% 09/19/ :00 UK Retail Sales Ex Auto MoM Aug 0.00% 1.10% Fundamental Outlook In the coming week, the pound may remain slight positive against the dollar. Bank of England new governor Mark Carney said that the central bank plan to keep benchmark rates low for the next 4 years to support the economic growth recovery and encouraging consumers and businesses spending. The UK Right move House Prices is expected to improve due to increase in demand. The consumer price index is also expected to increase along with retail price index which should further support the pound but the FOMC (Federal Reserve Open market committee) decision may create volatility in market. Overall we recommend staying on buying side for the pair. 6

7 TECHNICAL SNAPSHOT:- The cable ended the week largely higher at the level, a gain of over 1.8%.Earlier in the week it tested a low of and then saw a sharp rise to reach a high of Mentioned in our previous report about the confirmation of an up-side breakout from the descending triangle has propelled the pair to witness further upside. Going by the Fibonnaci projections the cable has very comfortably breached past the crucial 61.8% retracement level (1.5790) of the swing range ( ),suggesting a strongly bullish scenario for the cable. However on the daily chart we could clearly see that the cable is on the verge of approaching its upper end of the trend trading channel at level, suggesting that the gains in cable could be limited in the short term, following which we could some consolidation before it resume the uptrend. The resistance is at followed by The Support is at followed by Overall we could expect the cable to trade in a range of levels for the week and recommend buying on declines. 7

8 USD/JPY CURRENCY CONTRACT S2 S1 CLOSE R1 R2 RECOMMENDATION USDJPY Buy at TP SL Below JPYINR-MCX-SX Sep JPYINR-NSE Sep Sell at TP SL Above Sell at TP SL Above Fundamental Review Last week, the Japanese yen swung between gains and losses and settled on a marginally weaker note at 99.38, down by 0.27%. The fading concern over Syria has helped the Dollar index to recoup some of its losses which weighed down on the yen. Japan s second quarter GDP grew at a slower pace amid consumer spending and business spending pressurized yen. Japan s current account balance increased to 577.3B yen, up from the last month. Industrial production increased along with capacity utilization in the month of July limited the losses in yen. MCX-SX Sep % % % Oct % % % Nov % % % NSE Sep % % % Oct % % % Nov % % % Economic data for week ahead Date Time Region Event Period Survey Prior 09/19/ :20 JN Trade Balance Aug B - 09/19/ :20 JN Exports YoY Aug /19/ :20 JN Imports YoY Aug /20/ :20 JN Japan Buying Foreign Bonds Sep B 09/20/ :20 JN Japan Buying Foreign Stocks Sep B 09/20/ :20 JN Foreign Buying Japan Bonds Sep B 09/20/ :20 JN Foreign Buying Japan Stocks Sep B Fundamental Outlook In the coming week, the Japanese yen may remain under pressure on the prevailing concern over Federal Reserve decision for bond buying program. The market is likely to remain cautious on the back of FOMC meeting and this may create volatility. From the economic calendar, Japan will release its export, import and trade balance data. The export trade is likely to increase on the back of weak yen while imports also expected to increase due to higher crude oil price in the month of August. This should further widen the Japan s trade deficit and pressurize the yen. Overall we recommend to stay on buying side for the pair. 8

9 TECHNICAL SNAPSHOT: The Japanese yen ended marginally higher at the level after trading higher at the initial part of the week when it reached a high of , which it couldn t sustain and then reached a low of The Yen has managed to finally break out of the symmetrical triangle consolidation pattern.but it would be important for the buyers to withhold the prices above the break out point for one more week for the breakout confirmation. The weekly candlestick depicts a spinning top formation suggesting indecision between the buyers and the sellers. However for the coming week the bias could continue to remain positive as the yen still continues to trade above the 21 day exponential moving averages which is at the level. A sustained trade above the same could propel the trade higher in the short term. The Resistance on a sustained trade above the same is at and then The Support is at followed by levels. Overall we could expect the yen to trade in a range of for the week and recommend buying on declines. Major Economic Data for the week: Date & Time Region Event Period Survey Prior Impact SEP CH Foreign Direct Investment YoY Aug 12.50% 24.10% Negative 09/16/ :31 UK Rightmove House Prices MoM Sep % Slight Positive 09/16/ :00 IN Wholesale Prices YoY Aug 5.70% 5.79% Positive 09/16/ :30 EC CPI MoM Aug 0.10% -0.50% Slight Positive 09/16/ :00 US Empire Manufacturing Sep Slight Positive 09/16/ :45 US Industrial Production MoM Aug 0.40% 0.00% Positive 09/16/ :45 US Capacity Utilization Aug 77.90% 77.60% Positive 09/17/ :30 EC EU27 New Car Registrations Aug Negative 09/17/ :30 EC ECB Current Account SA Jul B Slight Positive 09/17/ :00 UK CPI MoM Aug 0.50% 0.00% Positive 09/17/ :00 UK RPI MoM Aug 0.40% 0.00% Positive 09/17/ :30 EC ZEW Survey Expectations Sep Positive 09/17/ :30 GE ZEW Survey Current Situation Sep Positive 09/17/ :30 GE ZEW Survey Expectations Sep Positive 09/17/ :30 EC Trade Balance SA Jul 15.0B 14.9B Slight Positive 09/17/ :00 US CPI MoM Aug 0.20% 0.20% Neutral 9

10 09/17/ :00 US CPI Ex Food and Energy MoM Aug 0.20% 0.20% Negative 09/17/ :30 US Total Net TIC Flows Jul -- -$19.0B Positive 09/17/ :30 US Net Long-term TIC Flows Jul -$15.0B -$66.9B Positive 09/17/ :30 US NAHB Housing Market Index Sep Neutral 09/18/ :30 EC Construction Output MoM Jul % Negative 09/18/ :30 US MBA Mortgage Applications Sep % Negative 09/18/ :00 US Housing Starts Aug 920K 896K Neutral 09/18/ :00 US Building Permits Aug 950K 943K Neutral 09/18/ :30 US FOMC Rate Decision Sep % 0.25% *** 09/19/ :20 JN Trade Balance Aug B B Negative 09/19/ :20 JN Exports YoY Aug Positive 09/19/ :20 JN Imports YoY Aug Negative 09/19/ :00 UK Retail Sales Ex Auto MoM Aug 0.00% 1.10% Negative 09/19/ :00 US Initial Jobless Claims Sep K 292K Slight Negative 09/19/ :00 US Continuing Claims Sep K 2871K Negative 09/19/ :00 US Current Account Balance 2Q -$97.2B -$106.1B Positive 09/19/ :30 US Existing Home Sales Aug 5.25M 5.39M Neutral 09/20/ :20 JN Japan Buying Foreign Bonds Sep B *** 09/20/ :20 JN Japan Buying Foreign Stocks Sep B *** 09/20/ :20 JN Foreign Buying Japan Bonds Sep B *** 09/20/ :20 JN Foreign Buying Japan Stocks Sep B *** 09/20/ :00 IN RBI Cash Reserve Ratio Sep % positive 09/20/ :00 IN RBI Repurchase Rate Sep % positive 09/20/ :00 IN RBI Reverse Repo Rate Sep % positive 09/20/ :30 EC Consumer Confidence Sep A Slight Positive 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