Currency Research Desk

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1 Currency Research Desk Currency weekly 05 Nov 2013 Global economic review Global equities were on a mixed note for the week. The MSCI INDICES LAST 1 week ago % Change US index closed negatively, though it traded positively for most of the week on the back of mostly positive third quarter NIFTY corporate earnings in the US, backed by expectations that the SENSEX Fed would not start to taper its asset purchase program in the NASDAQ near-term. US equities traded in the green for the first half of DOW JONES INDUSTRIAL the week. However, they pared their gains on speculation that SHANGHAI COMPOSITE the Fed might start tapering its bond purchase program in the NIKKIE next month. The MSCI Europe and MSCI Asia ended the week HANGSENG on a positive note. European equities traded higher for the FTSE Index most part of the week. However, they pared their gains on the back of weak euro-zone unemployment data and CPI numbers. CROSS LAST 1 week ago % Change We had a huge inflow of economic data in this week. Most of EURUSD the economic data releases from the US like the pending home GBPUSD sales, retail sales, consumer confidence, PPI and CPI were on USDJPY the negative side, which weighed negatively on the dollar USDCAD index. Data releases from the euro-zone included retail sales, USDCHF CPI and consumer climate from Germany and the USDSEK unemployment rate, CPI, consumer confidence for the entire DOLLAR INDEX European region. Most of the economic releases were negative, which had a negative impact on the euro. In spite of the negative economic data, the euro rallied during the initial half due to a weaker dollar and pared its gains during the fag end of the week. In Asia, China s manufacturing PMI increased at a decent pace while Japanese retail sales and manufacturing PMI also increased, which protected the yen from a sharp fall against the dollar Dollar Index Currency S2 S1 Close R1 R2 Recommendation Dollar Index Buy at TP SL Below TECHNICALSNAPSHOT:- The Greenback closed higher this week at 80.71, gaining more than 1 % over the week gone by. Earlier it reached a low of and then surged higher to test the level. The weekly candlestick depicts a bullish marubozu formation suggesting that the buyers dominated throughout the week.eventhough we had a sell on a rise view in the greenback last week,we had clearly mentioned that the fall in the dollar could be restricted as it has approached the -2% standard deviation( 78.95) from the mid level of the Bollinger band,along with the oversold relative strength index level has provided respite to the continuous selling.this bounce back has again led the greenback to pierce sharply into the trend trading channel, below which it had sustained for a week. However from a daily chart perspective the greenback has hit the resistance level of the down-sloping trend channel.though the price trend could still be in favour of the buyers as the greenback has breached past the major short term moving averages, mainly the 21 day moving average which is at the level. Considering the aforementioned factors we recommend buying on declines in the greenback. Currency Research Desk Mail Us at currencyresearch@karvy.com 1

2 USD/INR CURRENCY CONTRACT S2 S1 CLOSE R1 R2 RECOMMENDATION USDINR-MCX-SX Nov Buy range TP then SL USDINR-NSE Nov Buy range TP then SL Fundamental Review Last week, the rupee consolidated in the to range and settled at against the dollar, up by 0.70%. Although the Sensex and Nifty traded near their historical high levels of and 6300 respectively, the rupee ended on a weaker note. Initially, the rupee weakened due to anticipation caused by the RBI s rate decision about the interest rate hike. However, the Reserve Bank of India raised its interest rate by 25bps from 7.50% to 7.75% and reduced the Marginal Standing Facility (MSF) rate by 25bps from 9% to 8.75% to maintain the 100bps difference between the repo rate and the MSF. The lower MSF rate supported investor sentiments and, domestic indices gained the most in the same day. India s fiscal deficit narrowed from Rs crore to Rs 7437 crore but, it didn t majorly impact the rupee. The weakness witnessed in the rupee was preceded by the weakening of the euro and the rising of the Dollar index. The emerging market currencies also settled on a weaker note against the dollar, supporting the downside in the rupee. The euro weakened after the European labor department showed that the unemployment rate rose to a record high level of 12.2%. The euro-zone s inflation slowed to 0.7% in October, the lowest level since November 2009 and well below the European Central Bank s target rate of 2%. Other economic releases also turned out negative for the euro last week. This supported gains in the Dollar index even though the US economic releases mostly remained mixed. MCX-SX Nov % % % Dec % % % Jan % % % NSE Nov % % % Dec % % % Jan % % % Fundamental Outlook: The domestic indices traded near a historical high level of and 6300 respectively, which could fuel investor sentiment while improving foreign capital inflows and may further extend the gains in the rupee. The persistent steps taken by the Reserve bank of India and the Indian government to support economic growth may further influence investors. The manufacturing sector and services sectors were geared up by the Indian government. Furthermore, the spread difference between the two markets (offshore and onshore) for the dollar-rupee NDF contract narrowed from 12 paisa to 4 paisa, indicating lower demand for the dollar in the near-term. India will release its PMI services number, which could improve at a slower pace. At the global front, the Asian economy is looking mixed to slightly positive, supported by the likelihood of positive economic data. However, the euro may remain under pressure in the coming week, ahead of the European Central Bank s rate decision. The market is speculating that the European Central Bank may raise its interest rate from the historical low of 0.50%. This may cause volatility in the euro. From the US, the market awaits the third quarter US GDP growth rate, which is expected to slow down and may weigh down on the Dollar index. Overall, we expect the rupee to trade in a marginally weaker note in the coming week. Currency Research Desk Mail Us at currencyresearch@karvy.com 2

3 Economic data for week ahead Date Time Region Event Period Survey Prior 11/05/ :30 IN HSBC/Markit Services PMI Oct TECHNICAL SNAPSHOT:- The Indian rupee (61.73,+0.41%) traded in a steady range of levels this week as was anticipated in our prior week report (where we had mentioned the range for this week).this has been the 4th successive week when the rupee traded in a very narrow range.from the weekly chart we could clearly see that the rupee has very comfortably been above the mid level of the Bollinger band (now at 61.30) for four successive weeks when it has hardly seen a move above 62 and below This clearly suggests that the selling which prevailed for 5 weeks after it tested the level has now subsided and the market participants are now waiting for a directional move after this phase of consolidation is over. From a daily chart perspective the rupee has closed above the 20 day ema (61.69) after a long time. However the authenticity of this uptrend could fructify only if we see 2 daily close s above the aforementioned level.only on a sustained trade above the same could propel the rupee higher to test resistances at and then levels.the supports on a break and sustained trade below is at and then levels. Overall we could expect the rupee to trade in a range of levels for the week and recommend buying on declines.. Recommendation: RUPEE (SPOT) Buy range TP then SL USD-INR-NOV-MCX-SX-NSE-Buy range TP then SL Below Currency Research Desk Mail Us at currencyresearch@karvy.com 3

4 EUR/USD CURRENCY CONTRACT S2 S1 CLOSE R1 R2 RECOMMENDATION EURUSD Sell at TP SL EURINR-MCX-SX NOV Sell at TP SL EURINR-NSE NOV Sell at TP SL Fundamental Review The euro s long rally that began from $ in the 1st week of July halted for the first time in four months to top out at $ The euro sharply declined in the last week by 2% to settle at $ as of Friday. Besides, the negative economic data released recently led to the euro rising due to the weakness its major counterpart, the US dollar. However, looking at the current economic situation in the euro-zone, where the inflation is running much below the central government s target of 2% and the growth rate is at a mere 0.3% prompted the ECB to take a stance on its monetary policy. The market is anticipating that the ECB now has no options other than to cut its interest rate, which is already near zero percent. The ECB may plan to enter into a broad-based asset purchase plan like the US is currently doing. Also, it is expected that injecting more money into the system may not boost the economy. In fact, many central banks are now planning to convert their existing temporary bilateral currency swap facilities to standing facilities to ease strains in the financial markets and mitigate their effects on economic conditions. However, this has not helped the economy out of the current situation. MCX-SX Nov % % % Dec % % % Jan % % % NSE Nov % % % Dec % % % Jan % % % Fundamental Outlook We have the ECB announcing its rate decision, which is likely due on the 7th of November and, we believe it may go for a rate cut. In this regard, the currency, which has surged over 8% in the last four months might attempt decline in the near-term. Meanwhile, the economic data being released these days are unlikely to be better, except for a few. In the next week, we have Germany s PMI number, which is likely to remain close to to This, however may not have much of an impact on the economy. We also have the entire euro-zone s PMI data, which may decline slightly below 51.20, pulling the euro lower. Although the Sentix investor index is expected to improve, we believe it may not be very positive as the current economic sentiment still holds poor for the economy. Later on, we have the PPI number and, we believe it should remain lower close to 0.10% to 0.30%. This has been a major concern in the economy now that inflation is maintaining much below the ECB s projected levels. Later in the week, we have the total PMI numbers, which we expect to come in negative for the economy. The euro-zone s retail sales and factory orders may not improve much and are likely to remain in negative territory, pulling the euro lower. Germany s industrial production numbers are also expected to drift down and remain below 0.50%. Finally, on the last day of next week, we have Germany s trade balance data, which is expected to be better than the previous number and, we maintain a consensus with the expectation. Since it is expected on the last day of the week, we believe there can be a good amount short-covering from the lower levels on the euro. Looking at the current economic scenario, we believe that the ECB may go for a rate cut in the next week, which may support the currency to trade down. The current economic situation does not support the euro s remaining at elevated levels, so either the Currency Research Desk Mail Us at currencyresearch@karvy.com 4

5 economic data should help it to trade down or the ECB s forced stance will pull the currency lower. So, we maintain a bearish view on euro in the next week. Economic data for week ahead Date Time Region Event Period Survey Prior 11/04/ :30 EC PMI Manufacturing Oct F /04/ :00 EC Sentix Investor Confidence Nov /06/ :30 EC PMI Composite Oct F /06/ :30 EC Retail Sales MoM Sep -0.40% 0.70% 11/06/ :30 GE Factory Orders MoM Sep 0.50% -0.30% 11/07/ :30 GE Industrial Production SA MoM Sep 0.00% 1.40% 11/07/ :15 EC ECB Announces Interest Rates Nov % 0.50% 11/07/ :15 EC ECB Deposit Facility Rate Nov % 0.00% 11/08/ :30 GE Trade Balance Sep 15.2B 13.1B 11/08/ :30 GE Current Account Balance Sep 15.0B 9.4B TECHNICAL SNAPSHOT- The euro closed lower this week at the level,shedding more than 2.3 % over the week gone by.it reached a high of early in the week.this is the biggest weekly decline in the Euro after the 02/03/2013 weekly slide when it had shed just over 2 %. Unable to sustain above the upper end of the Bollinger band which is at level has led the prices to correct sharply.in doing so the Euro is now on the verge of approaching its lower end of the up-sloping channel support(1.3470) connecting the low s of The same has been confirmed by the momentum indicator relative strength index which has fallen from its peak at and now at 55 From a daily chart perspective the Euro has slipped below the crucial trendline support connecting the low s of Making the trendline breach even more important is that the 34 day ema(1.3584) rests on the trendline.hence in the near term any pullback which could occur as a result of the oversold technical osciallator conditions (relative strength index ) could be utilized to sell as a sustained trade below the same could propel the pair further lower.adding Fibonacci projections to the same the Euro has already breached below the 38.2% retracement level of the swing range ( ).Weakness could persist on a sustained trade below below which it could approach its 50 % retracement level at and then the 61.8% level at Overall we could expect the Euro to trade in a range of levels for the week and recommend selling on rises. Currency Research Desk Mail Us at currencyresearch@karvy.com 5

6 GBP/USD CURRENCY CONTRACT S2 S1 CLOSE R1 R2 RECOMMENDATION GBPUSD Sell at TP SL GBPINR-MCX-SX NOV GBPINR-NSE NOV Sell Below TP SL Sell Below TP SL Fundamental Review : Last week, the pound depreciated more than a percent against the dollar and settling at from the previous close of The UK economy grew at rate of 0.80%, the fastest pace in three years in the third quarter. The investors are speculating that the BOE would raise the interest rates even though at the risk of letting the currency appreciates further. This would contrast with former Governor Mervyn King, who said that, a weak pound with helping the U.K. avoid a economic slump. Moreover, M4 money supply has increased in the month of September caused weakness in pound. The rising value of Dollar index weighed down on the pound. MCX-SX Nov % % % Dec % % % Jan % % % NSE Nov % % % Dec % % % Jan % % % Economic data for week ahead: Date Time Region Event Period Survey Prior 11/04/ :00 UK PMI Construction Oct /05/ :00 UK Official Reserves Changes Oct -- -$188M 11/06/ :00 UK Industrial Production MoM Sep 0.60% -1.10% 11/06/ :00 UK Manufacturing Production MoM Sep 1.10% -1.20% 11/07/ :30 UK Bank of England Bank Rate Nov % 0.50% 11/07/ :30 UK BOE Asset Purchase Target Nov 375B 375B 11/08/ :00 UK Trade Balance Sep Fundamental Outlook In the coming week, the pound may remain under pressure ahead of Bank of England interest rate decision. The investors are anticipating that the bank would raise the record low level of interest rate (0.50%). The strings of economic releases due from the UK are expected to remain at a blend. The market would take cues from the BOE decision and Dollar index. Further recovery could be witnessed in the Dollar index which could weigh down on the pound Currency Research Desk Mail Us at currencyresearch@karvy.com 6

7 TECHNICAL SNAPSHOT:- The Pound closed lower this week at the level, shedding more than 1.50 % over the week gone by. After reaching a high of it drifted sharply lower to reach a low of on the last day of the week A break below the prior week doji low of has propelled the cable to move lower. From a weekly chart perspective we could clearly see that the candlestick pattern depicts a bearish evening star formation which could indicate a reversal in the prior uptrend if the prices sustain below the weekly low of Also from a daily chart the cable has drifted sharply below the 20 day exponential moving average level at which clearly indicates that the short term trend has turned down.from a Fibonnaci retracement perspective the pound has approached the 23.6% retracement level of the swing range ( ).Only on a break below the same could approach its 38.2% level at Overall we could expect the pound to trade in a range of levels for the week and recommend selling on rises. Currency Research Desk Mail Us at currencyresearch@karvy.com 7

8 USD/JPY CURRENCY CONTRACT S2 S1 CLOSE R1 R2 RECOMMENDATION USDJPY Buy at TP SL JPYINR-MCX-SX NOV JPYINR-NSE NOV Buy at TP SL Buy at TP SL Fundamental Review The Japanese yen plunged 0.98% against the dollar and settled at from the previous close of The weakness witnessed in yen was majorly due to strong Dollar index. The Japanese economic data were remained in favor of Japanese yen. However, Bank of Japan decision to continue the asset purchase program as long as possible has weighed down on the yen. MCX-SX Nov % % % Dec % 206 #VALUE! 107 #VALUE! Jan % 1 #VALUE! 1 #VALUE! NSE Nov % % % Dec % % % Jan % 2 #VALUE! % Economic data for week ahead Date Time Region Event Period Survey Prior 11/08/ :20 JN Japan Buying Foreign Bonds Nov B 11/08/ :20 JN Japan Buying Foreign Stocks Nov B 11/08/ :20 JN Foreign Buying Japan Bonds Nov B 11/08/ :20 JN Foreign Buying Japan Stocks Nov B 11/08/ :20 JN Official Reserve Assets Oct -- $1273.5B Fundamental Outlook In the coming week, the Japanese yen may remain under pressure. Japan has been continuously buying foreign bonds since the beginning of October, which supported gains in the yen while the foreign purchases of Japan s bonds and stocks also improved at a moderate pace, which could support the Japanese economy. We expect the same scenario to continue further. Japan s officials reserves have been improving since June, which may further show an uptick. The data may remain in favor of the yen.. However, the Dollar index may rally against the majors supported by improving market sentiment. Overall, we recommend to stay on buying side for the USDJPY pair. Currency Research Desk Mail Us at currencyresearch@karvy.com 8

9 TECHNICAL SNAPSHOT: The Japanese yen ended higher this week at 98.63, a gain of 1.28% over the week gone by.earlier it tested a low of and then reached a high of After two weeks of fall the yen trended higher.the weekly chart depicts a rising three methods formation (though here we have seen only 2 candles )suggesting that the fall in the last two week was merely a consolidation move of the rise the week prior to that.the momentum indicator relative strength index which was at the crucial 49 level last week has bounced higher to 53 suggesting that the momentum shift could vervy well be on the higher side as a sustained trade below 50 could have pushed the momentum to be on the lower side..from a daily chart perspective the yen has traded above the major short term moving average namely the 21 and the 34 ema which are clustered in the range of ,suggesting that the short term trend in the yen is up and it could extend its gains in the coming days. Overall we could expect the yen to trade in a range of levels for the week and recommend buying on declines. Major Economic Data for the week: Date & Time Region Event Period Survey Prior 11/02/ :30 US Total Vehicle Sales Oct 15.45M 15.21M 11/02/ :30 US Domestic Vehicle Sales Oct 11.90M 11.66M 11/03/ :30 CH Non-manufacturing PMI Oct /04/ :25 GE PMI Manufacturing Oct F /04/ :30 EC PMI Manufacturing Oct F /04/ :00 EC Sentix Investor Confidence Nov /04/ :00 UK PMI Construction Oct /04/ :15 US ISM New York Oct /04/ :30 US Factory Orders Sep 1.80% -- 11/04/ /08 UK Halifax House Prices MoM Oct 0.90% 0.30% 11/05/ :15 CH HSBC/Markit Services PMI Oct /05/ :30 IN HSBC/Markit Services PMI Oct /05/ :00 UK PMI Services Oct /05/ :00 UK Official Reserves Changes Oct -- -$188M 11/05/ :30 EC PPI MoM Sep 0.20% 0.00% 11/05/ :30 US ISM Non-Manf. Composite Oct /06/ :25 GE PMI Services Oct F /06/ :30 EC PMI Services Oct F /06/ :30 EC PMI Composite Oct F /06/ :00 UK Industrial Production MoM Sep 0.60% -1.10% 11/06/ :00 UK Manufacturing Production MoM Sep 1.10% -1.20% 11/06/ :30 EC Retail Sales MoM Sep -0.40% 0.70% 11/06/ :30 GE Factory Orders MoM Sep 0.50% -0.30% Currency Research Desk Mail Us at currencyresearch@karvy.com 9

10 11/06/ :30 US MBA Mortgage Applications Nov % 11/06/2013 UK New Car Registrations YoY Oct % 11/07/ :30 GE Industrial Production SA MoM Sep 0.00% 1.40% 11/07/ :30 UK Bank of England Bank Rate Nov % 0.50% 11/07/ :30 UK BOE Asset Purchase Target Nov 375B 375B 11/07/ :15 EC ECB Announces Interest Rates Nov % 0.50% 11/07/ :15 EC ECB Deposit Facility Rate Nov % 0.00% 11/07/ :00 US Initial Jobless Claims Nov K 340K 11/07/ :00 US Continuing Claims Oct K 11/07/ :00 US GDP Annualized QoQ 3Q A 1.90% 2.50% 11/07/ :00 US Personal Consumption 3Q A 1.60% 1.80% 11/07/ :00 US GDP Price Index 3Q A 1.30% 0.60% 11/07/ :00 US Core PCE QoQ 3Q A 1.60% 0.60% 11/07/ /12 GE Wholesale Price Index MoM Oct % 11/08/ :30 US Consumer Credit Sep $12.500B $13.625B 11/08/ :20 JN Japan Buying Foreign Bonds Nov B 11/08/ :20 JN Japan Buying Foreign Stocks Nov B 11/08/ :20 JN Foreign Buying Japan Bonds Nov B 11/08/ :20 JN Foreign Buying Japan Stocks Nov B 11/08/ :20 JN Official Reserve Assets Oct -- $1273.5B 11/08/ :30 GE Trade Balance Sep 15.2B 13.1B 11/08/ :30 GE Current Account Balance Sep 15.0B 9.4B 11/08/ :30 GE Exports SA MoM Sep 0.60% 1.00% 11/08/ :30 GE Imports SA MoM Sep 0.40% 0.40% 11/08/ :00 UK Trade Balance Sep /08/ :00 UK Construction Output SA MoM Sep 1.50% -0.10% 11/08/ :00 US Change in Nonfarm Payrolls Oct 125K 148K 11/08/ :00 US Two-Month Payroll Net Revision Oct /08/ :00 US Change in Private Payrolls Oct 130K 126K 11/08/ :00 US Change in Manufact. Payrolls Oct 5K 2K 11/08/ :00 US Unemployment Rate Oct 7.30% 7.20% 11/08/ :00 US Personal Income Sep 0.30% 0.40% 11/08/ :00 US Personal Spending Sep 0.20% 0.30% 11/08/ :00 US PCE Deflator MoM Sep 0.10% 0.10% 11/08/ :25 US Univ. of Michigan Confidence Nov P /08/2013 CH Trade Balance Oct $23.90B $15.21B 11/08/2013 CH Exports YoY Oct 1.40% -0.30% 11/08/2013 CH Imports YoY Oct 7.40% 7.40% Currency Research Desk Mail Us at currencyresearch@karvy.com 10

11 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 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. Currency Research Desk Mail Us at currencyresearch@karvy.com 11