Currency Research Desk

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1 Currency weekly 07 Oct 2013 Global economic review All the asset classes globally like, the equity indices in the US, INDICES LAST 1 week ago % Change Europe and Asia ended the week as the political deadlock NIFTY continued over increasing the debt ceiling which resulted in partial government shutdown in the US while the Chinese SENSEX markets remained closed for the entire week due to the NASDAQ golden week festival. The dollar index fell to a multi-week low DOW JONES INDUSTRIAL as the US government`s partial shutdown continued. The euro SHANGHAI COMPOSITE #N/A N/A #VALUE! strengthened against the US dollar after the ECB`s decision to NIKKIE keep the rates unchanged supported gains in the euro. Other HANGSENG major currencies like the pound closed lower while the yen finished the week with gains. FTSE Index CROSS LAST 1 week ago % Change Last week, we saw major economic releases from the US in EURUSD the form of negative ADP non-farm employment data and ISM non-manufacturing, which weighed on the dollar. Economic GBPUSD data from the euro m-zone in the form of manufacturing PMI USDJPY and French Manufacturing PMI were slightly positive and, the USDCAD positive service PMI numbers from the UK helped the euro USDCHF appreciate against the dollar. While the economic data from USDSEK China in the form of manufacturing PMI declined compared to DOLLAR INDEX its previous release and from Japan economic data in the form of positive retail sales, the Tankan large manufacturers index increased considerably than the estimates, which supported gains in the yen. Dollar Index Currency S2 S1 Close R1 R2 Recommendation Dollar Index Buy at 80 TP SL Below TECHNICALSNAPSHOT:- The dollar index ended the week marginally lower at after reaching a low of on the penultimate day of the week. Earlier in the week, it reached a high of Even though the dollar has broken below the up-sloping trend line on the weekly chart and sustained below the same for the third consecutive week, it could now be headed for a higher pullback as the weekly candlestick depicts a hammer formation, suggesting that the greenback could be finding short-term support based on the aforementioned candlestick behavior. Complementing the same has been the daily chart candlestick formation, which depicts a morning star formation with bullish implications in the short-term. The daily chart also has seen a positive relative strength index divergence, depicting that even though the prices were making new lows, the momentum indicator RSI was out of gear with the price action. A strong pullback, if one happens from the current levels might only be termed as a pullback in the downtrend as the dollar is still below its 21-day exponential moving average level of For the week the supports are at followed by The resistances are at followed by Overall, we expect the dollar to trade in a range of levels for the week and recommend buying on declines. 1

2 USD/INR CURRENCY CONTRACT S2 S1 CLOSE R1 R2 RECOMMENDATION USDINR-MCX-SX Oct Sell at TP SL USDINR-NSE Oct Sell at TP SL Fundamental Review The rupee appreciated 1.69% against the dollar, and consequently against the other major currencies. The rupee settled at in relation to the dollar, up from the previous week's close of The rupee strengthened after the slower pace of increase in India s current account deficit. The PMI manufacturing number improved unexpectedly in September, along with the improving fiscal deficit. The Sensex and Nifty indices surged 0.96% and 1.27%, settling at and respectively. The foreign capital inflow has increased to $126 million from last week's outflow. This supported the domestic indices as well as the rupee against the dollar. However, Asian equities mostly ended on a weaker note, which limited the gains in the domestic indices. The euro strengthened 0.27% against the dollar, backed by improving economic readings. The ECB (European Central Bank ) Chief Mario Draghi kept the benchmark rate at its existing level of 0.50% and said that the central bank may start another round of the LTRO program to keep the money market rate at a lower level. This supported gains in the euro, which reflected on the rupee. The improving European economy also supported the euro to trade at its historical high of The partial shutdown of the US economy and the postponement of the major job market related economic releases supported the downside in the Dollar index, which settled at against the majors, down by 0.21%. MCX-SX Oct % % % Nov % % % Dec % % % NSE Oct % % % Nov % % % Dec % % % Fundamental Outlook: In the coming week, the market is looking a little dicey. The Reserve Bank of India is planning to buy Rs 100 billion worth of Government securities through an OMO (Open Market Operation) to normalize the liquidity in the market. This may support the domestic indices and the rupee. India will release its local car sales number, which is expected to improve as major automobile companies such as Maruti Suzuki, Toyota and Ford recorded growth and showed signs of better sales in September. The import trade is expected to increase on the back of increased gold and crude oil imports in September, while export may also improve, backed by Indian Government measures. However, India s industrial production may decline due to weak manufacturing activities in August. The persistent outflow of foreign capital from the Indian debt markets due to the US shutdown may continue further until the Democrats and Republicans reach a final decision on the debt ceiling. At the global front, Asian equities may remain vulnerable in the coming week, which may reflect on the domestic indices and, the rupee could take cues from the same. The euro may continue its gaining streak amid improving European and German economic readings but, the Dollar index may recover from its lows, which could then pressurise the euro. The prevailing concerns over the US shutdown may continue in the next week, because of which the economic data could be postponed further and reflect on the Dollar index. Overall, we expect the rupee to trade on a positive note but, the gains could be restricted if the dollar recovers. 2

3 Economic data for week ahead Date Time Region Event Period Survey Prior 10/09/ /14 IN Local Car Sales Sep /10/ /15 IN Imports YoY Sep % 10/10/ /15 IN Exports YoY Sep % 10/11/ :30 IN Industrial Production YoY Aug % TECHNICAL SNAPSHOT:- The rupee ended lower for the fifth consecutive week at 61.45, shedding 1.70% or Rs Earlier in the week, it reached a high of and then, during the last session, witnessed a low of In doing so, the rupee has closed below the up-sloping trend line for the second straight week, confirming the conviction of sellers to propel the prices lower. Based on the Fibonacci retracement, the rupee has now tested the 50% retracement level (61.30) of the swing range ( ).A sustained trade below the same could further propel the rupee to its 61.8% retracement levels (59.60). From the weekly candlestick pattern perspective, the rupee depicts a bearish marubozu formation, suggesting that the sellers dominated the week throughout. A break below the prior week's Doji low of has shown the propensity towards selling in the market. By looking at the daily chart, we can also construe that the directional moment indicator ADX (Average directional index, now at 22 ) which depicts the strength in the prevailing trend is clearly skewed in favor of the seller as the DMI ( 30) which had crossed over the DMI+ (19) from the past few weeks has widened further. The strength of the sellers might accentuate on a break above the 25 level in the ADX (indicative of a trending phase). For the week, the crucial supports are at followed by The Resistances are at followed by 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 add more lots below target stop loss above USD-INR-OCT-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 EURINR-MCX-SX OCT Sell at TP SL EURINR-NSE OCT Sell at TP SL Fundamental Review The euro traded higher in the last week and settled at $1.3557, while it made a weekly high of $ The euro remains supported by an improving economy and the U.S. Federal Reserve's decision last week to leave its monetary stimulus programme unchanged. In the recent past, the money market rates were rising in the euro-zone so the ECB issued a unique forward guidance to curb the rates. However, the policy was revealed recently when the prospects of the Fed slowing the pace of its bond buying programme. Nonetheless, the money market rates were uninterruptedly rising. Subsequently, Draghi hinted at the prospect of more cheap loans after the Fed s surprise decision to keep the stimulus programme continuing, which pushed the euro to trade higher. Therefore, we believe that the euro may continue to outperform in the near-term. In the meanwhile, the Fed's decision to delay tapering its stimulus program has helped and hindered the ECB's attempts to keep euro-zone's monetary policy loose; therefore, it eventually pushed the money market rates lower and supported the euro to trade higher. We believe that though the economic data from Germany and the euro-zone are coming better but, major gains in the euro were primarily because of the weakness in US dollar. MCX-SX Oct % % % Nov % % % Dec % % % NSE Oct % % % Nov % % % Dec % % % Fundamental Outlook In the coming week, the euro could revive from its losses. The euro-zone investor confidence number is likely to improve which should continue to push the euro higher. Also, it is likely that the wholesale price index of Germany that was in negative territory at % in the last month may possibly improve in the September statistics as retail sales are likely to show further improvement. On the flip side, we have the German trade balance and current account balance data and are expected to be marginally lower in August. As stated, we are anticipating these data to be better than expected and should help the currency to trade strong. Likewise, the German factory orders are also expected to improve for the month of August as it had fallen sharply in the previous month to -2.70% and since then, we could see a gradual recovery. As we understand, the sharp decline in factory orders were majorly from foreign demand however, we believe that the month of August may have been better. Lastly, we have the ECB s monthly report and the Bank of England (BOE) releasing its bank and asset purchase rate. Looking at the overall economic scenario, we believe that the euro may continue to gain in the next week. However, the risk factor lies in the Fed s decision on the US debt ceiling and this could create volatility in the market. Overall we recommend to stay on a buying side for the pair. 4

5 Economic data for week ahead Date Time Region Event Period Survey Prior 10/07/ :00 EC Sentix Investor Confidence Oct /07/ /12 GE Wholesale Price Index MoM Sep % 10/08/ :30 GE Trade Balance Aug 15.0B 16.1B 10/08/ :30 GE Current Account Balance Aug 13.0B 14.3B 10/08/ :30 GE Exports SA MoM Aug 1.20% -1.10% 10/08/ :30 GE Imports SA MoM Aug 0.70% 0.50% 10/08/ :30 GE Factory Orders MoM Aug 1.00% -2.70% 10/09/ :30 GE Industrial Production SA MoM Aug 1.00% -1.70% 10/10/ :30 EC ECB Publishes Monthly Report 10/11/ :30 GE CPI MoM Sep F 0.00% 0.00% 10/11/ /15 GE Import Price Index MoM Aug -0.10% 0.30% TECHNICAL SNAPSHOT- The euro ended the week higher at the level, a marginal gain of 0.27 %. It traded higher for the major part of the week after breaking above the prior week's doji high of before witnessing a selloff on the last day of the week, which could be attributed to long liquidation as we mentioned in our previous report. Earlier in the week, it witnessed a low of $ The weekly candlestick depicts a bullish engulfing formation, suggesting that the buyers dominated the week. Looking at the daily chart, the euro has seen an uptrend line breach connecting the lows of , which could result in a throwback if the recent high is not taken out. The supports on a higher pullback are at followed by The resistances are at followed by Overall, we expect the euro to trade in the range of for the week and recommend buying on declines 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 pound plunged 0.80% against the dollar and settled at , down from the previous week close of The UKX index plunged around a percent and settling at , taking cues from the other European equities amid concerns over the US debt ceiling. The Bank of England (BOE) governor said that the bank may tighten its monetary policy, which weighed down on market sentiments and led to losses in the pound. The UK's PMI manufacturing and construction declined in September, which fuelled further losses in the currency. The official reserves also declined in September from $228 million to -$188 million, supporting the downside in the pound. MCX-SX Oct % % % Nov % % % Dec % % % NSE Oct % % % Nov % % % Dec % % % Economic data for week ahead: Date Time Region Event Period Survey Prior 10/09/ :00 UK Industrial Production MoM Aug 0.40% 0.00% 10/09/ :00 UK Manufacturing Production MoM Aug 0.40% 0.20% 10/09/ :00 UK Trade Balance Aug /10/ :30 UK Bank of England Bank Rate Oct % 0.50% 10/10/ :30 UK BOE Asset Purchase Target Oct 375B 375B 10/11/ :00 UK Construction Output SA MoM Aug 0.80% 2.20% Fundamental Outlook In the coming week, a slight recovery could be seen in the pound against the dollar due to a weak Dollar index. The UK will release its industrial production data, which is expected to improve along with manufacturing production and may support the pound. The trade balance may improve slightly from last month, supported by improving exports. The market event from the UK would be the Bank of England's policy decision. The BoE may keep its interest rate constant and maintain its 375 billion pound asset purchase program. The forward guidance may continue to support further the currency. Overall, we expect the pound to trade on a positive note against the dollar. 6

7 TECHNICAL SNAPSHOT:- The cable ended the week lower at the level, shedding 0.82 % over the week gone by.earlier in the week it reached a high of and then during the latter end of the week tested a low of For the first time after four week s of uptrend the pound has ended in the negative. The weekly candlestick depicts a dark cloud cover formation indicating that the pound which has been in a strong up-trend could now come under pressure and could result in long liquidation.even though the cable is still above the 21 day exponential moving average which is at level, a breach below the same could lead to further weakness in the short term. This weakness could lead it to the lower end of the trend trading channel support which is at For the week the supports are at followed by The Resistances are at followed by Overall we could expect the cable to trade in a range of levels for the week and recommend selling on rises. 7

8 USD/JPY CURRENCY CONTRACT S2 S1 CLOSE R1 R2 RECOMMENDATION USDJPY Range JPYINR-MCX- SX OCT JPYINR-NSE OCT Sell at TP SL Sell at TP SL Fundamental Review Last week, the yen appreciated 0.77% against the dollar and settled at 97.48, up from the previous close of due to a weak Dollar index. Japan s retail sales improved along with construction orders, supporting gains in the yen. However, a decline in industrial production along with weak vehicle production limited gains in the yen. However, the Bank of Japan kept its interest rate unchanged and maintained its 7 trillion yen asset purchase program. However, the BoJ's decision to not increase the pace of the bond-buying program supported gains in the yen. 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 10/07/ :20 JN Official Reserve Assets Sep -- $1254.2B 10/08/ :20 JN BoP Current Account Balance Aug 548.1B 577.3B 10/08/ :20 JN Trade Balance BoP Basis Aug B B 10/10/ :20 JN Japan Buying Foreign Bonds Oct B 10/10/ :20 JN Japan Buying Foreign Stocks Oct B 10/10/ :20 JN Foreign Buying Japan Bonds Oct B 10/10/ :20 JN Tertiary Industry Index MoM Aug 0.40% -0.40% 10/10/ :20 JN Machine Orders MoM Aug 2.50% 0.00% 10/10/ :30 JN Consumer Confidence Index Sep Fundamental Outlook In the coming week, the yen may further continue its gaining streak. Japan s official reserves may continue to extend their uptrend on the back of improving foreign bond from Japan and the purchase of Japanese stocks from abroad. The current account balance is expected to improve at a slower pace due to the reserves holding at the Bank of Japan and other major banks improved from last month. However, the trade deficit may widen in the month of August amid higher demand for fossil fuel and the increased cost of crude oil. Japan's tertiary industry index is expected to improve, along with machine orders. The data may have a positive impact on the yen while the vulnerability of the Dollar index could further support the yen. The consumer confidence may grow at a slower pace due to concerns over the increasing sales tax. Overall, we recommend staying on the selling side for the pair. 8

9 TECHNICAL SNAPSHOT: The Japanese yen ended the week lower at 97.46, shedding 0.77%.Earlier in the week it tested a high of and then drifted lower during the latter part of the week to test a low of The weekly candlestick depicts a spinning top formation suggesting indecision prevailing between the buyers and the sellers. Hence for the next week a directional move could happen only on break above/below the prior week high/low which are at 98.72/96.89 levels. The momentum indicator relative strength index has slipped below the 50 level, suggesting that the yen could weaken further if sustained below the same.on the daily chart the yen has slipped below most of the major short term moving averages, suggesting that the short term trend is down and any pullback from the current levels could be a selling opportunity.the Supports are at followed by The Resistances are at followed by Overall we could expect the yen to trade in a range of levels for the week and recommend selling on rises.. Major Economic Data for the week: Date Time Region Event Period Survey Prior Impact 10/07/ :20 JN Official Reserve Assets Sep -- $1254.2B Slight positive 10/07/ :00 EC Sentix Investor Confidence Oct Positive 10/07/ /12 GE Wholesale Price Index MoM Sep % Slight Negative 10/07/ /12 US Construction Spending MoM Aug 0.40% 0.60% Slight Negative 10/07/ /12 US Change in Private Payrolls Sep 182K 152K Slight Negative 10/07/ /12 US Change in Nonfarm Payrolls Sep 180K 169K Slight Negative 10/07/ /12 US Factory Orders Aug 0.30% -2.40% Slight Positive 10/07/ /12 US Unemployment Rate Sep 7.30% 7.30% Neutral 10/07/ /12 US Change in Manufact. Payrolls Sep 5K 14K Slight Negative 10/08/ :30 US Consumer Credit Aug $12.000B $10.437B Slight Negative 10/08/ :20 JN BoP Current Account Balance Aug 548.1B 577.3B Slight Positive 10/08/ :20 JN Trade Balance BoP Basis Aug B B Slight Negative 10/08/ :15 CH HSBC/Markit Services PMI Sep Slight Positive 10/08/ :30 GE Trade Balance Aug 15.0B 16.1B Slight Positive 10/08/ :30 GE Current Account Balance Aug 13.0B 14.3B Slight Positive 9

10 10/08/ :30 GE Exports SA MoM Aug 1.20% -1.10% Slight Positive 10/08/ :30 GE Imports SA MoM Aug 0.70% 0.50% Slight Positive 10/08/ :30 GE Factory Orders MoM Aug 1.00% -2.70% Positive 10/08/ :00 US NFIB Small Business Optimism Sep Slight Negative 10/08/ :00 US Trade Balance Aug -$39.3B -$39.1B Slight Negative 10/09/ :00 UK Industrial Production MoM Aug 0.40% 0.00% Positive 10/09/ :00 UK Manufacturing Production MoM Aug 0.40% 0.20% Positive 10/09/ :00 UK Trade Balance Aug Slight Positive 10/09/ :30 GE Industrial Production SA MoM Aug 1.00% -1.70% Positive 10/09/ :30 US MBA Mortgage Applications Oct % Slight Negative 10/09/ :30 US Wholesale Inventories MoM Aug 0.30% 0.10% Slight Negative 10/09/ :30 US Wholesale Trade Sales MoM Aug 0.40% 0.10% Slight Negative 10/09/ /14 IN Local Car Sales Sep Slight positive 10/10/ :20 JN Japan Buying Foreign Bonds Oct B Slight positive 10/10/ :20 JN Japan Buying Foreign Stocks Oct B Slight negative 10/10/ :20 JN Foreign Buying Japan Bonds Oct B Slight negative 10/10/ :20 JN Foreign Buying Japan Stocks Oct B Slight positive 10/10/ :20 JN Tertiary Industry Index MoM Aug 0.40% -0.40% Slight Positive 10/10/ :20 JN Machine Orders MoM Aug 2.50% 0.00% Positive 10/10/ :30 JN Consumer Confidence Index Sep Slight Positive 10/10/ :30 EC ECB Publishes Monthly Report *** 10/10/ :30 UK Bank of England Bank Rate Oct % 0.50% *** 10/10/ :30 UK BOE Asset Purchase Target Oct 375B 375B *** 10/10/ :00 US Initial Jobless Claims Oct K 308K *** 10/10/ :00 US Continuing Claims Sep K *** 10/10/ :00 US Import Price Index MoM Sep 0.30% 0.00% Slight Positive 10/10/ /17 US Monthly Budget Statement Sep $60.0B -- Slight Negative 10/10/ /15 CH Foreign Reserves Sep $3520.0B $3500.0B Slight Positive 10/10/ /15 CH New Yuan Loans Sep 662.1B 711.3B Slight Negative 10/10/ /15 IN Imports YoY Sep % Slight negative 10/10/ /15 IN Exports YoY Sep % Positive 10/11/ :30 GE CPI MoM Sep F 0.00% 0.00% Neutral 10/11/ :00 UK Construction Output SA MoM Aug 0.80% 2.20% Slight Positive 10/11/ :30 IN Industrial Production YoY Aug % Slight Negative 10/11/ :00 US PPI MoM Sep 0.20% 0.30% *** 10/11/ :00 US Retail Sales Advance MoM Sep 0.20% 0.20% Slight Negative 10/11/ :00 US Retail Sales Ex Auto MoM Sep 0.40% 0.10% Slight Negative 10/11/ :25 US Univ. of Michigan Confidence Oct P Slight Negative 10/11/ :30 US Business Inventories Aug 0.30% 0.40% Slight Negative 10/11/ /15 GE Import Price Index MoM Aug -0.10% 0.30% Slight Positive 10

11 Notes: The US 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. 11