Currency Research Desk

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1 Currency Research Desk Currency weekly 14 Oct 2013 Global economic review All the asset classes including global equity indices like MSCI Asia, MSCI USA, MSCI Global and MSCI Europe along with the US, Europe and Asian equities traded mostly negative till the first half of the week. However, most of the indices recovered smartly during the latter half of the week and ended the week on a slightly positive note. However, they pared their gains on signs that the political deadlock may be solved and raise the debt ceiling limit before the October 17th deadline. During the week, the dollar was the worst performer among the major currencies due to the ongoing political impasse on increasing the debt ceiling limit however, the dollar recovered from its multi-week low and ended the week on a marginally positive note. While the euro which traded in the green during the week on the back of the weakness in the dollar, ended the week on a slightly negative note. Other major currencies like the pound and yen closed lower. INDICES LAST 1 week ago % Change NIFTY SENSEX NASDAQ DOW JONES INDUSTRIAL SHANGHAI COMPOSITE #N/A N/A #VALUE! NIKKIE HANGSENG FTSE Index CROSS LAST 1 week ago % Change EURUSD GBPUSD USDJPY USDCAD Last week we saw major economic releases from the US in the USDCHF form of negative jobless claims data and negative small USDSEK business optimism which should have weighed on the dollar DOLLAR INDEX but the negative data was ignored on the signs that the US law-makers may reach an agreement on increasing the debt ceiling limit. Economic data from Germany in the form of German trade balance, German industrial production increased at a slower pace while German factory orders declined sharply. While the economic data from UK in the form of manufacturing production and industrial production declined which had a negative impact on the pound. Japanese Core machinery orders and tertiary industry activity increased at a decent pace which supported the Japanese yen. Dollar Index Currency S2 S1 Close R1 R2 Recommendation Dollar Index Buy at TP Then SL TECHNICALSNAPSHOT:- The greenback ended the week higher at 80.36,a marginal gain of 0.30 % over the week gone by.earlier in the week it witnessed a low of and during the latter end of the week reached a high of In doing so the greenback has closed higher for the second successive week and hence got back into upsloping channel connecting the low s of( ) as depicted in the chart.the prior week hammer candle which indicated a likely bottom in the greenback has been followed by a bullish engulfing candlestick, the confirmation of which could mean that the pullback could further continue in the coming week.however from daily chart perspective the 21 day exponential moving average which is at could continue to act as a resistance for the greenback in the short term. A break and a sustained trade above which could result in a potential trend reversal. The Support is at followed by The Resistances are at followed by Overall we could expect the greenback to trade in a range of levels for the week and recommend buying on declines. Currency Research Desk Mail Us at currencyresearch@karvy.com 1

2 USD/INR CURRENCY CONTRACT S2 S1 CLOSE R1 R2 RECOMMENDATION USDINR-MCX-SX Oct USDINR-NSE Oct Sell at TP Then SL Sell at TP Then SL Fundamental Review The Indian rupee completed its second week of gain and settling at 61.08, up by 0.59% from previous week close of The rupee strengthened after the India s economic indicators turned out better that includes improving local car sales, narrowing trade deficit and unexpected decline in imports. The Reserve Bank of India lowered the Marginal Standing Facility rate (MSF) by 50bps from 9.50% to 9% to ease liquidity crunch in the local market, supported gains in rupee. The Foreign capital statistic showed improving inflows in equity ($122.67Mn) and debt markets ($73.2Mn). This supported gains in domestic indices while Sensex and Nifty settled at and , up by more than 3%. Most Asian equities were settled on a positive note along with strong emerging market currencies as the US lawmaker may take some stance to avoid debt default. Improve in Japanese consumer confidence and machine orders also supported gains in Japanese equities which influenced the other Asian peers. The euro settled on a marginally weaker note at , down by 0.10% due to strengthening Dollar index. The economic readings from the Europe mainly remained subdued while optimism over European Central Bank may introduce another around of LTRO program if needed to support the economy, fuelled gains in equity markets while limited gains in euro. The US lawmaker pledged to avoid debt default and end partial shutdown. This supported gains in American equities and Dollar index. Dollar index settled at against the majors, up by 0.30%. MCX-SX Oct % % % Nov % % % Dec % % % NSE Oct % % % Nov % % % Dec % % % Fundamental Outlook: In the coming week, the market would wait for the India s inflation rate which may influence the rupee. The food and fuel prices declined in the month of September which could support the consumer price index and wholesale price index to slowdown. The Reserve Bank of India and Indian Government measures to normalize the liquidity in the local market may support the rupee. The improving foreign capital inflows and nearly historical high level of Nifty index at 6000 level influenced the rupee. The foreign exchange reserve has improved to $277.7Bn from $276.26Bn may increase the demand for rupee in near term. However, the spread difference between the two markets (offshore and onshore) has widened from 12 paisa to 47 paisa. At the global front, China s third quarter GDP is expected to improve amid improving industrial production and retail sales. This may support the Chinese equities and thereby Asian peers. However, major data from Asian economy especially Japan and China may remain subdued which could weigh down on the market sentiment. The euro is looking little vulnerable for the next week. The economic readings from the Europe are expected to be mixed. The major factors which could moves the market would be US lawmaker decision on debt ceiling and shutdown. The US lawmakers have been extending the talks on avoiding debt default and end the partial shutdown. However, there are still uncertainties over US economic data. Overall we could expect the rupee to trade on a stronger note but the pace of appreciation could be lessening by the prevailing concerns over US debt ceiling. Currency Research Desk Mail Us at currencyresearch@karvy.com 2

3 Economic data for week ahead Date Time Region Event Period Survey Prior 10/14/ :00 IN Wholesale Prices YoY Sep 6.00% 6.10% 10/14/ :30 IN CPI YoY Sep 9.50% 9.52% TECHNICAL SNAPSHOT:- The week gone by witnessed the Indian rupee going down by 1.70 % or Rs 1.06.The seller s dominated the week throughout as it fell sharply lower after reaching a high of 62.30, which also happens to be the 61.8 % retracement level of the short swing range It finally closed at Sustaining below the up-sloping trend line as mentioned in our previous reports has only led to a fall in the rupee. In doing so the rupee has also breached the crucial 50 % retracement level at of the swing range and breached the prior week Doji low at Other important aspect to be noted here is that the doji candle in the prior week was formed at the up-trend line support level. This breach below has eventually led the long positions getting liquidated as the earlier week which ended in an indecision phase has now tilted the market direction clearly in the favour of the sellers. Hence in the near term any pullback close to the level now could be construed to be a selling opportunity as the aforementioned level may now act as a strong resistance. A pullback could very well be possible in the next week as the momentum indicator relative strength index (37) could be approaching the oversold zone on the daily time frame.from a daily chart perspective the ADX which gauges the strength of the trend is now at the 22 level suggesting a strong trending phase could be in the offing as there has been a negative DMI cross-over positive DMI from below. Overall we expect the rupee to trade in a range of levels for the week and recommend selling on rises. Recommendation: RUPEE (SPOT) Sell at TP SL USD-INR-OCT-MCX-SX-NSE- Sell at TP Then SL Currency Research Desk Mail Us at currencyresearch@karvy.com 3

4 EUR/USD CURRENCY CONTRACT S2 S1 CLOSE R1 R2 RECOMMENDATION EURUSD Range EURINR-MCX-SX OCT Sell at TP SL EURINR-NSE OCT Sell at TP SL Fundamental Review The euro initiated the week on a stronger note supported by weakness in Dollar index while slightly improving sentiment in market about the US lawmaker may possibly take some stance to end the partial shutdown supported the Dollar index against the euro. The euro settled at against the greenback, down by 0.10%. European Central Bank's stance on accommodative monetary policy that the key interest rates would remain at present (0.50%) or lower levels for an extended period of time to support the economic recovery. The conventional economic data released last week were also not that promising as the factory orders again tumbled down into negative trajectory and Germany and the euro zone numbers were also not so better. The European Union signed currency swap agreement with China worth350 Bn Yuan (45Bn Euro) to improve the bilateral trade and support the economy. These factors supported euro to limit its losses against the dollar. MCX-SX Oct % % % Nov % % % Dec % % % NSE Oct % % % Nov % % % Dec % % % Fundamental Outlook In the coming week, the market is looking little dicey. The investors across the globe await for the decision on US debt ceiling. This may also impact on European bourses. The third quarter euro-zone GDP growth due next week. The GDP may improve at a slower pace due to mixed economic readings appeared in third quarter. In the beginning of next week we have the euro zone industrial production data and likely to show slight recovery from its massive fall from -1.50% witnessed last month. The major contributor Germany s IP numbers were also lower so we believe it should be lower for the entire euro zone. On the same day we have the Germany s import price index which is likely to remain lower. We are anticipating it to be lower assuming the consumption would have been less in the month of August. Later on, we have the ZEW survey expectations and situations for the month of October and now it is likely to turn lower unlike previous month. Another most important data that are expected towards the end of the week are euro zone trade balance and ECB current account data and we have seen them correcting down in the previous month and likely to drift down further in the month of August which may have major impact on the currency. Overall we expect the euro to remain vulnerable for the next week. Currency Research Desk Mail Us at currencyresearch@karvy.com 4

5 Economic data for week ahead Date Time Region Event Period Survey Prior 10/14/ :30 EC Industrial Production SA MoM Aug 0.60% -1.50% 10/14/ /16 GE Import Price Index MoM Aug -0.10% 0.30% 10/15/ :30 EC ZEW Survey Expectations Oct /15/ :30 GE ZEW Survey Current Situation Oct /15/ :30 GE ZEW Survey Expectations Oct /16/ :30 EC EU27 New Car Registrations Sep % 10/16/ :30 EC CPI MoM Sep 0.50% 0.10% 10/16/ :30 EC Trade Balance SA Aug B 10/17/ :30 EC ECB Current Account SA Aug B 10/17/ :30 EC Construction Output MoM Aug % TECHNICAL SNAPSHOT- The Euro witnessed a narrow trading week when it moved in a range of and It closed marginally lower at shedding 0.12 % over the week gone by. For the third consecutive week it has closed below the level, suggesting stiff resistance prevailing at those levels. Hence only a candlestick close above the on a weekly basis could augur the euro to trade higher and test new high s.also that the Euro has stiff support in the range of where most of the major moving averages are clustered namely 13,21 and the 34 exponential moving averages,has acted as a strong cushion for the euro to bounce back whenever it has approached near those levels. Though the weekly candlestick depicts a Doji formation which indicates a phase of indecision between the market participants the trend continues to favor a buy on decline strategy because of the aforementioned factors. Overall we could expect the Euro to trade in a sideways range of levels for the week and recommend buying on declines. 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 OCT Sell at TP SL GBPINR-NSE OCT Sell at TP SL Fundamental Review : Last week, the British pound depreciated 0.30% against the greenback and settling at from the previous week close of The weakness prevailed in pound was due to strengthening dollar index. The nine-member Monetary Policy Committee of the Bank of England headed by Mark Carney has decided to keep the benchmark rate at its historic low of 0.50% and maintained monthly bond buying program at 375Bn pound. The UK industrial production and manufacturing production declined unexpectedly in the month of August pressurized pound against the dollar. However, the improving housing sectors limited the losses in pound. Trade balance also improved in August along with exports trades. The UKX index rose 0.52% and settled at MCX-SX Oct % % % Nov % % % Dec % % % NSE Oct % % % Nov % % % Dec % % % Economic data for week ahead: Date Time Region Event Period Survey Prior 10/15/ :00 UK PPI Input NSA MoM Sep 0.00% -0.20% 10/15/ :00 UK CPI MoM Sep 0.30% 0.40% 10/15/ :00 UK Retail Price Index Sep /15/ :00 UK RPI MoM Sep 0.40% 0.50% 10/16/ :00 UK ILO Unemployment Rate 3Mths Aug 7.70% 7.70% 10/17/ :00 UK Retail Sales Ex Auto MoM Sep 0.40% -1.00% Fundamental Outlook In the coming week, the pound may remain under pressure due to concerns over UK economic growth. The UK producer price index and consumer price index may remain weak due to slowing down of consumption and spending. The retail price is also expected to decline in the month of September which may pressurize the pound. The unemployment rate may remain unchanged. On the whole, the economic data may have slight negative impact on pound. Consequently, any positive development over US debt ceiling and shutdown could weigh down on the pound. Currency Research Desk Mail Us at currencyresearch@karvy.com 6

7 TECHNICAL SNAPSHOT:- The Cable ended lower for the second successive week when it closed at Earlier in the week it reached a high of Overall it shed 0.34 % over the week gone by. In doing so the cable has approached the up-sloping trend line support connecting the low s of Hence the coming week could be critical for the cable as the authencity of the prevailing uptrend could be under test, as a sustained trade above /below could lead to a directional move leading to a wider price movement in the coming day s. Also by looking at the daily chart the cable is now at the lower end of the upsloping channel but slipped below most of the major short term moving averages,the major being the 21 day ema which is at This could mean that a sustained trade below the aforementioned level could might propel the cable to the 38.2 % retracement as the cable has already retraced to the 23.6 % level of the swing range ( ). Overall we could expect the cable 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 JPYINR-MCX- SX OCT Buy at TP Then SL Sell at TP Then SL JPYINR-NSE OCT Sell at TP Then SL Fundamental Review Last week, the Japanese yen depreciated 1.13% in relation to dollar and finished at from the last week close of The yen weakened after the Dollar index rallied on the optimism over US lawmaker may come to the positive side on US debt ceiling. The Japanese equities especially, Nikkei and Topix index rose 2.71%, 2.87% and settling at and The Japanese official reserves improved to $1273.5B from B in the month of September. The current account balance improved at a slower pace along with trade deficit, limited the losses in yen. However, Machine tool orders declined which pressurized the yen against the dollar. MCX-SX Oct % % % Nov % % % Dec % #N/A N/A #VALUE! #N/A N/A #VALUE! NSE Oct % % % Nov % % % Dec % % % Economic data for week ahead Date Time Region Event Period Survey Prior 10/15/ :00 JN Industrial Production MoM Aug F % 10/15/ :00 JN Capacity Utilization MoM Aug % 10/17/ :30 JN Machine Tool Orders YoY Sep F % Fundamental Outlook In the coming week, the yen may continue its weakness against the dollar. The Japan s industrial production is expected to slow down along with capacity utilization backed by lower manufacturing activities. Machine tool orders are also expected to decline due to lower export demand in the month of September. The wake of rising hope that the US lawmaker could negotiate over the ongoing Federal Reserve shutdown and raising the debt ceiling. This could support the dollar against the Japanese yen. Currency Research Desk Mail Us at currencyresearch@karvy.com 8

9 TECHNICAL SNAPSHOT: The Japanese yen ended higher this week at 98.50, gaining over 1%.Earlier it witnessed a low of and then tested a high of The weekly candlestick clearly depicts a bullish engulfing formation suggesting that the buyers overwhelmed the sellers.the bullish engulfing candlestick attains more significance as it has been formed after a doji week prior to this week. Even though the prior week high at couldn t be breached it could be anticipated that the yen could continue to attract buyers at lower levels. On the daily chart the yen has breached above the down sloping trend line connecting high s of ( ).From a Fibonacci retracement perspective the yen has retraced 50 % level of the short term swing range ( ).A breach above the same could propel it to its 61.8 % level 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 Impact 10/11/ /15 CH Foreign Reserves Sep $3520.0B $3500.0B Positive 10/11/ /15 CH New Yuan Loans Sep 675.0B 711.3B Negative 10/14/ :00 CH CPI YoY Sep 2.80% 2.60% Negative 10/14/ :00 CH PPI YoY Sep -1.40% -1.60% Negative 10/14/ :00 IN Wholesale Prices YoY Sep 6.00% 6.10% Positive 10/14/ :30 EC Industrial Production SA MoM Aug 0.60% -1.50% Negative 10/14/ :30 IN CPI YoY Sep 9.50% 9.52% Positive 10/14/ /16 GE Import Price Index MoM Aug -0.10% 0.30% Negative 10/14/ /18 CH Foreign Direct Investment YoY Sep 6.40% 0.60% Positive 10/15/ :00 JN Industrial Production MoM Aug F % Negative 10/15/ :00 JN Capacity Utilization MoM Aug % Negative 10/15/ :00 UK PPI Input NSA MoM Sep 0.00% -0.20% Moderate negative 10/15/ :00 UK CPI MoM Sep 0.30% 0.40% Moderate negative 10/15/ :00 UK Retail Price Index Sep Moderate negative 10/15/ :00 UK RPI MoM Sep 0.40% 0.50% Moderate negative 10/15/ :30 EC ZEW Survey Expectations Oct Moderate negative 10/15/ :30 GE ZEW Survey Current Situation Oct Moderate negative 10/15/ :30 GE ZEW Survey Expectations Oct Moderate negative Currency Research Desk Mail Us at currencyresearch@karvy.com 9

10 10/15/ :00 US Empire Manufacturing Oct Negative 10/15/ /19 US Construction Spending MoM Aug 0.40% 0.60% Moderate negative 10/15/ /19 US Import Price Index MoM Sep 0.20% 0.00% Moderate negative 10/15/ /19 US Wholesale Inventories MoM Aug 0.30% 0.10% Moderate negative 10/15/ /19 US Change in Private Payrolls Sep 183K 152K Neutral 10/15/ /19 US Change in Nonfarm Payrolls Sep 180K 169K Neutral 10/15/ /19 US PPI MoM Sep 0.20% 0.30% Negative 10/15/ /19 US Retail Sales Advance MoM Sep 0.00% 0.20% Negative 10/15/ /19 US Factory Orders Aug 0.30% -2.40% Moderate negative 10/15/ /19 US Trade Balance Aug -$39.5B -$39.1B Moderate negative 10/15/ /19 US Unemployment Rate Sep 7.30% 7.30% Neutral 10/15/ /19 US Business Inventories Aug 0.30% 0.40% Moderate negative 10/15/ /19 US Change in Manufact. Payrolls Sep 5K 14K Negative 10/15/ /19 US Monthly Budget Statement Sep $65.0B $75.2B Negative 10/15/ /19 US Wholesale Trade Sales MoM Aug 0.30% 0.10% Neutral 10/16/ :30 EC EU27 New Car Registrations Sep % Negative 10/16/ :00 UK ILO Unemployment Rate 3Mths Aug 7.70% 7.70% Neutral 10/16/ :30 EC CPI MoM Sep 0.50% 0.10% Negative 10/16/ :30 EC Trade Balance SA Aug B Negative 10/16/ :30 US MBA Mortgage Applications Oct % Negative 10/16/ :30 US NAHB Housing Market Index Oct Negative U.S. Federal Reserve Releases Beige 10/16/ :30 US Book Neutral 10/16/ /19 US Total Net TIC Flows Aug -- $56.7B Positive 10/16/ /19 US Net Long-term TIC Flows Aug -- $31.1B Positive 10/17/ :30 JN Machine Tool Orders YoY Sep F % Negative 10/17/ :30 EC ECB Current Account SA Aug B Negative 10/17/ :00 UK Retail Sales Ex Auto MoM Sep 0.40% -1.00% Moderate negative 10/17/ :00 UK Retail Sales Incl. Auto MoM Sep 0.40% -0.90% Moderate negative 10/17/ :30 EC Construction Output MoM Aug % Negative 10/17/ :00 US Initial Jobless Claims Oct K Negative 10/17/ :00 US Continuing Claims Oct K Negative 10/17/ :30 US Philadelphia Fed Business Outlook Oct Negative 10/17/ /19 US CPI MoM Sep 0.20% 0.10% Negative 10/17/ /19 US CPI Ex Food and Energy YoY Sep 1.80% 1.80% Neutral 10/17/ /19 US Building Permits Sep 935K 918K Neutral 10/17/ /19 US Housing Starts Sep 910K 891K Neutral 10/18/ :30 CH GDP SA QoQ 3Q 2.10% 1.70% Positive 10/18/ :30 CH Industrial Production YoY Sep 10.20% 10.40% Moderate negative 10/18/ :30 CH Retail Sales YoY Sep 13.40% 13.40% Moderate Positive 10/18/ /26 US Industrial Production MoM Sep 0.40% 0.40% Moderate negative 10/18/ /26 US Capacity Utilization Sep 78.10% 77.80% Moderate negative Currency Research Desk Mail Us at currencyresearch@karvy.com 10

11 Notes: The US economic releases are mostly postponed due to prevailing concerns over US partial shutdown 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