Currency Research Desk

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1 Currency weekly 05 August 2013 Global economic review Last week, the global equities ended on a positive territory INDICES LAST 1 week ago % Change supported by improving economic readings across the globe. NIFTY The US equities markets especially Dow Jones surged 4.38%. The US ISM manufacturing number has improved more than SENSEX expectation along with personal spending. However, pending NASDAQ home sales, Dallas fed manufacturing number and consumer DOW JONES INDUSTRIAL confidence number remained subdued. The US GDP growth rate SHANGHAI COMPOSITE has increased at a slower pace along with personal income. NIKKIE From the European Union, Most of the economic readings HANGSENG remained positive which supported the euro. The IMF approved 2.3 billion euro bailout package for Greece which has created FTSE Index optimism in the market. The unemployment rate from Germany CROSS LAST 1 week ago % Change has remained at 6.8% level while euro-zone unemployment rate EURUSD improved slightly from 12.20% to 12.10%. The UK housing GBPUSD sector has continued to show improvement from last couple of months. The UK PMI manufacturing and construction number USDJPY improved at a faster pace with increase in spending. The Bank of USDCAD England has kept its benchmark rate constant at 0.50% and USDCHF maintained its 375B pound asset purchased program intact. This USDSEK supported the up trend in UKX index and it settled at DOLLAR INDEX The Japanese Topix index and Nikkei index gained 2.49% and 2.38% due to weakness in yen. From the Chinese territory, leading index and manufacturing PMI increased which indicated the slower growth of Chinese economy. From the Indian market, Reserve Bank of India has kept the interest rate unchanged which caused the rupee to depreciate against the dollar by 1%. However, the fiscal deficit increased from the prior which limited the downside in the Indian rupee. Overall, the Dollar index surged 0.36%, euro dropped 0.02% and rupee fell 3.48% last week. Dollar Index Currency S2 S1 Close R1 R2 Recommendation Dollar Index Range TECHNICALSNAPSHOT:- After falling for three consecutive week s the greenback witnessed a sharp pullback from the week low to reach a high of However a cluster of exponential moving averages namely (21,34) on the daily chart which are at and levels has led to a rejection of prices to the downside.this could further suggest that the inclination is still biased toward the downside as long as the prices trade below the aforementioned levels.the weekly candlestick depicts a bullish harami formation suggesting a short term reversal could be in the offing owing to the candlestick behaviour,also supported by the fact that it is very near to its up-sloping trend trading channel which is at 81. The Support is at followed by The Resistance is at followed by 83. Overall we could expect the dollar to trade in a range of levels for the week. 1

2 USD/INR CURRENCY CONTRACT S2 S1 CLOSE R1 R2 RECOMMENDATION USDINR-MCX-SX Aug Buy at TP SL Below USDINR-NSE Aug Buy at TP SL Below Fundamental Review Last week, the Indian rupee snapped its three-week gains against the greenback and settled at from previous close of The rupee posted its biggest weekly loss since June after the Reserve Bank of India kept the key interest rate at its existing level and lowered the economic growth forecast for FY from 5.7% to 5.5%. The domestic indices, Sensex and Nifty slumped 3.54%, 2.96% and settled at and respectively. The drastic fall noticed in domestic indices was due to tight liquidity condition in the market. India s fiscal deficit has narrowed down from the last month figure which limited the losses in rupee. At the global front, Japanese equities and Chinese equities have remained on a positive note which provided little respite to domestic indices but the concern over weak economic growth and tight liquidity condition pressurized the domestic indices. The euro settled on a marginally weaker note at against the US dollar due to positive economic readings and strong Dollar index. The US equities settled on a positive note and Dollar index rose 0.36% against the majors and settled at supported by improving manufacturing numbers and personal spending. MCX-SX Aug % % % Sep % % % Oct % % % NSE Aug % % % Sep % % % Oct % % % Fundamental Outlook: In the coming week, the rupee could continue its weakness against the greenback on the concern over weak economic growth. The economic data expectation from the India in the form of local car sales and market services number which are expected to decline could pressurize rupee. The spread difference between the two markets (onshore and offshore) of the dollar-rupee contracts has narrowed from -15 paisa to -10 paisa indicates higher demand for dollar in the near-term. However, the forex currency asset has improved from $251.13B to $252.05B which may support the rupee to limit its losses. The foreign capital inflows have slightly improved in last week after the Reserve Bank of India kept key interest rate unchanged. At the global front, the market would eagerly watch for bank of Japan s monetary policy meeting. The BOJ might keep its interest rate unchanged and is likely to continue it s asset purchase program to achieve 2% level of inflation. This could support the Japanese stock markets while it may weigh down on the yen. From the Europe, PMI numbers are likely to improve along with sentix investor confidence which may support the shared currency euro. While Germany industrial production is likely to slowdown in the month of June due to lower consumption which could reflect on the euro. The US dollar may further recover supported by positive economic readings and a weak Japanese yen may further provide support to dollar to edge higher. Overall we recommend to stay on the buying side for the pair. 2

3 Economic data for week ahead Date Time Region Event Period Survey Prior 08/05/ :30 IN HSBC/Markit Services PMI Jul AUG IN Local Car Sales Jul TECHNICAL SNAPSHOT:- After falling for three consecutive week s the Indian rupee witnessed a gain of 3.44% or 2.03 paisa over the prior week. For the first time it has posted a close above the crucial 61 mark.on a couple of occasions it had breached 61 but could not sustain. Hence this close above 61 now could be considered to be a significant one,suggesting a stronghold of the buyers Earlier it made a low of and then continued to move higher in the mid part of the week to reach a high of The Upsloping trendline which got breached last week that indicated bearishness could not hold as prices started moving swiftly above the weekly pivot (59.18) and after that breach above the previous week s high (59.86) propelled a series of buying mixed with short covering which fuelled the rally much more than what was expected after 3 week s of decline.the Weekly candlestick depicts a bullish marubozu formation suggesting that the buyers dominated the week throughout.also on the weekly chart we could clearly see it moving towards the upper end of the rising channel which is at the levels.the only concern is that on the hourly and the daily chart there is a strong negative RSI (Relative strength index ) divergence being formed which could probably propel the pair to witness some profit booking in the earlier part of the week.however this decline which follow s could be utilized to buy the rupee for higher targets of and then The Support is at and then levels. Overall we could expect the rupee to trade in a range of levels for the week and recommend to buy on declines. Recommendation: RUPEE (SPOT)- Buy at TP SL Below USD-INR-AUG-MCX-SX-NSE- Buy at TP SL Below

4 EUR/USD CURRENCY CONTRACT S2 S1 CLOSE R1 R2 RECOMMENDATION EURUSD Range EURINR-MCX-SX Aug Buy at TP SL Below EURINR-NSE Aug Buy at TP SL Below Fundamental Review Last week, the euro settled on a marginally weaker note at against the dollar, down by 0.02%. Most of the economic readings from Europe and Germany remained positive which supported the euro. The IMF approved 2.3 billion euro bailout package for Greece which has created optimism in the market. The unemployment rate from Germany has remained at 6.8% level while eurozone unemployment rate improved slightly from 12.20% to 12.10%. The PMI manufacturing numbers from Germany and euro-zone has increased at a faster pace in the month of July. The European Central Bank kept the key interest rates at its existing level of 0.50%. The euro weakened due to strong Dollar index. MCX-SX Aug % % % Sep % % % Oct % % % NSE Aug % % % Sep % % % Oct % % % Fundamental Outlook The shared currency euro could revive from its losses during starting of the week on the anticipation of improving economic readings in the form of PMI composite and services numbers. Germany factory orders may improve along with trade balance numbers due to higher exports in comparison to imports. The Sentix investor confidence might also edge higher in the month of August supported by improving economic activity and improving labor sector. However, the retail sales could remain weak due to lower consumption in the member nations. Overall we recommend to stay on the buying side for the pair. Economic data for week ahead Date Time Region Event Period Survey Prior 08/05/ :25 GE PMI Services Jul F /05/ :30 EC PMI Services Jul F /05/ :30 EC PMI Composite Jul F /05/ :00 EC Sentix Investor Confidence Aug /05/ :30 EC Retail Sales MoM Jun -0.70% /06/ :30 GE Factory Orders MoM Jun 1.00% %- 08/07/ :30 GE Industrial Production SA MoM Jun 0.30%

5 TECHNICAL SNAPSHOT- The Euro ended the week flat at , shedding marginally by 0.02 %.Eventhough the Euro reached a new high of this week, it couldn t breach past those levels as it has resisted sharply from the descending triangle resistance which has limited the gains in the Euro. Unable to sustain at the aforementioned level led to some profit booking and the Euro reached a low of levels which is also near to the 20 day exponential moving average level which has once again acted as a support on any throwback.the weekly candlestick pattern clearly depicts a doji formation clearly suggesting indecision between both the buyers and the sellers.hence market players may wait for either a breakout /breakdown to happen above /below the prior week high/low to initiate fresh positions.on the daily charts the Euro is again at a very crucial resistance level of the trend channel connecting highs ( ).Hence this could turn out be a crucial week for the Euro for a new direction in prices.the Support is at followed by The Resistance is at and then Overall we could expect the Euro to trade in a range of levels for the week.. 5

6 GBP/USD CURRENCY CONTRACT S2 S1 CLOSE R1 R2 RECOMMENDATION GBPUSD Range GBPINR-MCX-SX Aug Buy at TP 94 SL Below 92 GBPINR-NSE Aug Buy at TP 94 SL Below 92 Fundamental Review : Last week, the cable depreciated 0.57% against the US dollar and settled at from previous close The major factor for the pound to weaken was a strengthening Dollar index. The economic readings from the UK mostly remained on a positive territory. The investor s sentiment also improved on the back of growth in economy amidst consumer spending. The UK housing sector has continued to show improvement from last couple of month s. The PMI manufacturing and construction number improved at a faster pace as a result of increase in spending. The Bank of England has kept its benchmark rate constant at 0.50% and maintained it s 375B pound asset purchased program. MCX-SX Aug % % % Sep % % % Oct % % % NSE Aug % % % Sep % % % Oct % % % Economic data for week ahead: Date Time Region Event Period Survey Prior 08/05/ :00 UK PMI Services Jul /05/ :00 UK Official Reserves Changes Jul -- -$1871M 08/06/ :00 UK Industrial Production MoM Jun 0.70% 0.00% 08/06/ :00 UK Manufacturing Production MoM Jun 1.00% -0.80% 08/06/2013 UK New Car Registrations YoY Jul % 08/09/ :00 UK Trade Balance Jun /09/ :00 UK Construction Output SA MoM Jun -1.90% 0.00% Fundamental Outlook In the coming week, the British pound could remain under pressure on the back of reviving Dollar index. The Dollar index could extend its gaining streak majorly due to weakness in Japanese yen. The economic data expectation from the UK would be PMI services, house prices data, industrial production figure and manufacturing production data. The industrial and manufacturing production figures may continue to remain on a positive territory. The PMI services and trade balance might also increase at a slower pace supported by optimistic sentiments. The construction output might decline while housing price may improve in the month of July. Overall we recommend staying on a buying side for the pair. 6

7 TECHNICAL SNAPSHOT After gaining for three consecutive weeks the cable closed the week lower at levels, shedding 0.60%.Earlier during the week it reached a high of which it could not sustain for long and then came selling which propelled the cable to reach a low of levels much below its crucial trend deciding 20 day exponential moving average which is at However it was only for a brief period that it persist below that level and then pulled back higher during the latter part of the week.going by the price action the pound for the first time in three week has not been able to breach above its prior week high at and breached below its previous week s low This suggests that the pound has found stiff resistance at the aforementioned levels.hence a negative bias could be set in if the recent high s are not taken out. On the Weekly chart the Right angled broadening formation continues to bode well as the pound could be heading towards its lower end of the formation at The Resistance is at followed by The Support is at followed by levels Overall we could expect the pound to trade in a range of levels for the week. 7

8 USD/JPY CURRENCY CONTRACT S2 S1 CLOSE R1 R2 RECOMMENDATION USDJPY Buy at Tp SL Below JPYINR-MCX-SX Aug Buy at TP SL Below 61 JPYINR-NSE Aug Buy at TP SL Below 61 Fundamental Review Last week, the Japanese yen posted a weekly loss of 0.74% against the US dollar and settled at from previous close of The Topix index gained 2.49% to 1,196.17, the biggest rally since June 28,2012. The Nikkei index surged 2.38% to 14, in July at the fastest pace in more than two years. The major reason being a weak yen. The Japanese retail sales declined along with the industrial production due to poor demand for goods in the economy. Small business confidence and construction orders increased at a slower pace in the month of July. The vehicle sales also remained weak which weighed down on the Japanese currency last week. MCX-SX Aug % % % Sep % % % Oct % 6 #VALUE! 1 #VALUE! NSE Aug % % % Sep % % % Oct % % % Economic data for week ahead Date Time Region Event Period Survey Prior 08/06/ :30 JN Coincident Index Jun P /07/ :20 JN Official Reserve Assets Jul -- $1238.7B 08/08/ :20 JN BoP Current Account Adjusted Jun 727.3B 623.3B 08/08/ :20 JN Trade Balance BoP Basis Jun B B 08/08/2013 JN BOJ Target Rate Aug /08/2013 JN BOJ 2014 Monetary Base Target Aug T 08/09/ :30 JN Consumer Confidence Index Jul Fundamental Outlook In the coming week, the market would eagerly watch for Bank of Japan s two-day policy meeting. The BOJ may keep its interest rate unchanged and is likely to maintain 60T to 70T yen asset purchase program to achieve 2% level of inflation. Japan s current account balance number is expected to decline on the back of lower exports in comparison to imports in the month of June. However, Japan s tertiary industry index is likely to decline due to lower industrial production and retail sales. The consumer confidence number is expected to improve on the optimism of continuation of Abenomics policies by Japan s Prime Minister Shinzo Abe to support the economic growth in the nation. Overall we could expect the Japanese yen to further depreciate against the US dollar. 8

9 TECHNICAL SNAPSHOT: The Japanese yen ended the week higher at levels, a gain of 0.69%.It reached a low of and then surged higher to reach levels.going by the Fibonacci projections the Yen which is on a retracement mode has tested its 50% level (97.80) of its swing range ( ),which could further suggest that strong support exist at the aforementioned level.on the Weekly chart we could see a bullish flag being formed suggesting a consolidation phase of its prior sharp upmove.a breakout above the same could further augur bullishness for the yen in the coming days.the Weekly relative strength index is at 56 which further suggest strength could persists as long as the 50 mark is held.the Resistance is at followed by The Support is at followed by levels. Overall we could expect the yen to trade in a range of levels for the week and recommend to buy on declines.. Major economic events for the week Date Time Region Event Period Survey Prior 08/03/ :30 CH Non-manufacturing PMI Jul /05/ :15 CH HSBC/Markit Services PMI Jul /05/ :30 IN HSBC/Markit Services PMI Jul /05/ :25 GE PMI Services Jul F /05/ :30 EC PMI Services Jul F /05/ :30 EC PMI Composite Jul F /05/ :00 UK PMI Services Jul /05/ :00 UK Official Reserves Changes Jul -- -$1871M 08/05/ :00 EC Sentix Investor Confidence Aug /05/ :30 EC Retail Sales MoM Jun -0.70% 1.00% 08/05/ :30 US ISM Non-Manf. Composite Jul AUG US Mortgage Delinquencies 2Q % AUG US MBA Mortgage Foreclosures 2Q % 08/06/ :30 JN Coincident Index Jun P /06/ :00 UK Industrial Production MoM Jun 0.70% 0.00% 08/06/ :00 UK Manufacturing Production MoM Jun 1.00% -0.80% 08/06/ :30 GE Factory Orders MoM Jun 1.00% -1.30% 08/06/ :00 US Trade Balance Jun -$43.0B -$45.0B 08/06/2013 UK New Car Registrations YoY Jul % 9

10 08/07/ :20 JN Official Reserve Assets Jul -- $1238.7B 08/07/ :30 GE Industrial Production SA MoM Jun 0.30% -1.00% 08/07/ :30 US MBA Mortgage Applications Aug % 08/08/ :30 US Consumer Credit Jun $15.000B $19.615B 08/08/ :20 JN Japan Buying Foreign Bonds Aug B 08/08/ :20 JN Japan Buying Foreign Stocks Aug B 08/08/ :20 JN Foreign Buying Japan Bonds Aug B 08/08/ :20 JN Foreign Buying Japan Stocks Aug B 08/08/ :20 JN BoP Current Account Adjusted Jun 727.3B 623.3B 08/08/ :20 JN Trade Balance BoP Basis Jun B B 08/08/ :30 GE Trade Balance Jun 15.0B 13.1B 08/08/ :30 GE Current Account Balance Jun 16.0B 11.2B 08/08/ :00 US Initial Jobless Claims Aug K 326K 08/08/ :00 US Continuing Claims Jul K 2951K 08/08/2013 CH Trade Balance Jul $25.95B $27.12B 08/08/2013 JN BOJ Target Rate Aug /08/2013 JN BOJ 2014 Monetary Base Target Aug T 08/09/ :00 CH CPI YoY Jul 2.80% 2.70% 08/09/ :00 CH PPI YoY Jul -2.10% -2.70% 08/09/ :30 US Wholesale Inventories MoM Jun 0.40% -0.50% AUG IN Local Car Sales Jul 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