HSL PCG Currency Insight -Weekly. 18 March, 2017

Transcription

1 HSL PCG Currency Insight -Weekly 18 March, 2017

2 WEEKLY MOVEMENT Currency Currency (Spot) Last Prev. Close Chg. % Chg. DXY Index % EURUSD % GBPUSD % USDJPY % USDINR % EURINR % GBPINR % JPYINR % DGCX USDINR % RBI Reference Rate Currency Last Prev. Close Chg. % Chg. USDINR % EURINR % GBPINR % JPYINR % GOI 10 Yr. Bond Yield Instrument Last Prev. Close Chg. % Chg. 697GS % MARKET WRAP UP Rupee Halts Gain in Coming Week as Dollar Buying from Importers and Central Bank Rupee lead advance among Asian emerging-market currencies this week amid dollar weakness on the Federal Reserve didn t signal a faster pace of tightening and historical win by BJP in UP state election. Rupee gained 1.7% this week to settle at , most since five days ended March 4, The foreign funds bought net ~$1.09b of Indian shares in three days through Thursday as per for official data. Current trend of rupee appreciation will likely get corrected in next few trading sessions as central bank will play role by adding dollar in basket. Also, dollar buying from importers and large corporates restrict short term gain. India s sovereign notes decline, with yield on 6.97% 2026 bonds down 4 bps for week on strong foreign fund flow in domestic bond market. Dollar falls to Lowest Since November on Weak Inflation and Dovish Fed Outlook The dollar headed for its biggest weekly loss since July after a measure of U.S. inflation expectations dropped to a record low. The dollar index touched it lowest since Nov. 11 after a University of Michigan survey showed long-term inflation expectations dropping to a record. The greenback added to declines seen after the Federal Reserve disappointed traders this week with its failure to make more aggressive forecasts for rate hike. ICE Dollar index closed at with loss of 0.94% in the week gone. Pound Rises after Hawkish BoE Cable marked first weekly gain since February after hawkish comment from BoE. The central bank s rate meeting signalled the rise of 25 basis point rate increase by September Currently, market is pricing 95% of the rate hike by Sept GBP/USD settles week at after high of ; set for a 1.88% weekly gain after a 2.4% decline in the previous two weeks. The pair is facing strong headwinds within

3 WEEKAHEAD Orders placed with U.S. factories for durable goods rose in February as companies continued to boost investment in new equipment, a government report probably will show. Data on sales of new and existing homes will also be released. Monday, March 20 U.S. Federal Reserve Bank of Chicago President Charles Evans will speak about current economic conditions and monetary policy at a National Association for Business Economics luncheon in New York. Euro-area finance ministers discuss Greece, member states budgets, jobs and debt issuance plans. Tuesday, March 21 European Union finance ministers discuss VAT, country reports, the G-20 finance ministers meeting and the European defense fund. Wednesday, March 22 Sales of previously owned U.S. homes probably cooled in February as limited listings continued as a drag Thursday, March 23 US New-home purchases probably crept higher in February as mortgage rates stabilized after surging at the end of last year, U.S. Federal Reserve Bank of Dallas President Robert Kaplan will speak at the Chicago Council on Global Affairs in a moderated Q&A session on the U.S. economic outlook and monetary policy. The European Central Bank publishes its economic bulletin. Friday, March 24 US Orders for durable goods are projected to rise in February for a second month, indicating business investment is picking up. WEEKLY PRICE - VOLUME - OI (PVO) CURRENCY PAIR HIGH LOW CLOSE WKLY % CHG. OPEN INTEREST (OI) WKLY OI % CHG. VOLUME (VOL.) WKLY VOL. % CHG. NSE INRUSD Future Mar % % % NSE EURINR Future Mar % % % NSE GBPINR Future Mar % % % NSE JPYINR Future Mar % % %

4 TECHNICAL OUTLOOK SPOT USDINR USDINR Mar. Future CMP Currency Weekly Pivot DAILY CHART Resistance Resistance Pivot Support Support USDINR MARCH FUTURE : DOWNTREND CONTINUES In the week, Pair fell by 1.73%, highest one week drop since Week ended 4 th March Existing trend has been bearish with lower tops and lower bottoms. Short term moving averages are trading below long term moving averages, indicating bearish trend. RSI on the Daily and Weekly charts have entered in to oversold zone. The Range of would act as a resistance, while supports for the same are seen at and

5 TECHNICAL OUTLOOK EURINR Mar. Future CMP Currency Weekly Pivot SPOT EURINR DAILY CHART Resistance Resistance Pivot Support Support EURINR MAR. FUT. : LIKELY TO CONSOLIDATE EURINR has remained resilient relatively against the strength of rupee. In last three sessions, EURINR recouped almost all losses seen on Tuesday. RSI for the Pair has been forming positive divergence on the daily chart, which indicates bears losing their grip. However, bullish trend reversal is yet to be confirmed. Support for the pair is at and resistance for the same is at Considering the technical evidences discussed above, We believe that pair can consolidate in the mentioned range for the next week.

6 TECHNICAL OUTLOOK GBPINR Mar. Future CMP Currency Weekly Pivot SPOT GBPINR DAILY CHART Resistance Resistance Pivot Support Support GBPINR MAR. FUT.: SHORT COVERING ON CARDS, BUY AT CMP FOR THE TARGETS OF AND 83.40, SL 80. In last three sessions, Pair recouped almost all the losses registered on Tuesday s session. Pair closed almost flat by the end of the week Pair has formed bullish candle stick pattern of Dragonfly Doji on the weekly charts, indicating probable bullish trend reversal. RSI on the daily charts has exited the oversold zone. However, Primary trend of the pair is bearish with lower ops and lower bottoms Considering the technical evidences, We expect pullback in the pair from current levels. We recommend buying pair at CMP for the targets of and 83.40, keeping SL at 80

7 TECHNICAL OUTLOOK SPOT JPYINR JPYINR Mar. Future CMP : DAILY CHART Currency Weekly Pivot Resistance Resistance Pivot Support Support JPYINR MARCH FUT.: SHORT COVERING ON CARDS, BUY AT CMP, FOR THE TARGETS OF 59 AND 59.70, SL Primary trend of the Pair has been bearish with lower tops and lower bottoms However, trends do have counter trends and the same we can expect at current levels for various technical reasons. Pair has formed bullish candlestick called Hammer on the weekly charts, indicating probable bullish trend reversal RSI on the daily chart has exited the oversold zone. We advise buying March futures at CMP, for the targets of 59 and 59.70, keeping SL at

8 DOLLAR INDEX EURUSD EURUSD: Daily Chart DXY: Daily Chart GBPUSD USDJPY GBPUSD: Daily Chart USDJPY: Daily Chart

9 USDINR MAR. MONTH OPTION DISTRIBUTION Data Interpretation: In past week, we witnessed USDINR 65 put writing had been seen as it added around 2.11 lakh contracts, indicating trader don t expect fall below 65 level for the current series. On higher side, traders covered there position in strikes while fresh addition at 67 strike suggesting near term resistance. Put call ration pegged at 1.10 from previous week s 1.21 considered as oversold condition near term short covering can t be ruled out. Looking at the above distribution, we believe near term bounce in the pair with down side support around and resistance in the range of to 67.00

10 USDINR FUTURE OPEN INTEREST CHANGE Data Interpretation: USDINR March future registered fourth consecutive weekly losses. The pair closed at marking loss of 1.73% for the week. The aggregate open interest jump to 26 lakh contracts, however near month open interest dip by 3.1% during the week. The fall in price and open interest at lower band indicating short term bounce before heading lower. Near term short covering with overall bias remaining bearish, the pair would find support around and resistance around

11 INDIA FOREX RESERVE Indian Foreign Exchange Reserves (US$ Billions) Wkly Chg. 10-Mar 3-Mar 24-Feb 17-Feb 10-Feb 3-Feb Total Reserves Foreign Currency Assets Gold Special Drawing Rights Position in IMF FOREIGN FUND FLOW VS USDINR Positive Net Foreign Equity Invt. Negative Net Foreign Equity Invt. Positive Net Foreign Debt Invt. Negative Net Foreign Debt Invt.

12 MAJOR CURRENCIES CURRENCY PAIR 1 DAY 5 DAY 1 MONTH 3 MONTHS 6 MONTHS 1 YEAR CLOSE (% CHG.) (% CHG.) (% CHG.) (% CHG.) (% CHG.) (% CHG.) ICE Dollar Index (0.06) (0.94) (0.64) (2.57) Euro Spot (0.26) (3.91) (5.12) British Pound Spot (0.13) 0.01 (4.87) (14.40) Japanese Yen Spot (9.56) (1.16) Indian Rupee Spot (0.10) Brazilian Real Spot Australian Dollar Spot South Korean Won Spot (1.21) 3.66 S. African Rand Spot Canadian Dollar Spot (0.23) 0.91 (1.90) 0.43 (1.10) (2.80) Swiss Franc Spot (0.17) (1.80) (3.07) MAJOR COMMODITIES COMMODITY 1 DAY 5 DAY 1 MONTH 3 MONTHS 6 MONTHS 1 YEAR CLOSE (% CHG.) (% CHG.) (% CHG.) (% CHG.) (% CHG.) (% CHG.) Gold (0.43) 8.00 (6.39) (2.28) Silver (3.29) 8.99 (9.19) 9.39 Crude Oil (9.30) (10.59) MAJOR INDICES INDEX 1 DAY 5 DAY 1 MONTH 3 MONTHS 6 MONTHS 1 YEAR CLOSE (% CHG.) (% CHG.) (% CHG.) (% CHG.) (% CHG.) (% CHG.) Nifty 50 Index S&P BSE Sensex Index Dow Jones Indus. Avg (0.10) S&P 500 Index (0.13) Nasdaq Composite Index FTSE100 Index CAC 40 Index DAX Index Nikkei (0.35) (0.42) Hang Seng Index Shanghai Se Composite (0.96) 0.77 (0.08)

13 ECONOMIC EVENTS NEXT WEEK Date Time Country Event Period Survey Prior 03/20/ :00 US Chicago Fed Nat Activity Index Feb /21/ :00 UK CPI YoY Feb 2.00% 1.80% 03/21/ :00 UK CPI Core YoY Feb 1.80% 1.60% 03/21/ :00 UK House Price Index YoY Jan % 03/21/ :00 US Current Account Balance 4Q -$128.6b -$113.0b 03/22/ :20 JN Trade Balance Feb 807.2b b 03/22/ :30 EC Current Account NSA Jan b 03/22/ :30 EC ECB Current Account SA Jan b 03/22/ :30 US MBA Mortgage Applications 17-Mar % 03/22/ :30 US Existing Home Sales Feb 5.59m 5.69m 03/23/ :00 US Initial Jobless Claims 18-Mar k 03/23/ :00 US Continuing Claims 11-Mar k 03/23/ :30 US New Home Sales Feb 560k 555k 03/23/ :30 EC Consumer Confidence Mar A /24/ :00 JN Nikkei Japan PMI Mfg Mar P /24/ :30 EC Markit Eurozone Manufacturing PMI Mar P /24/ :30 EC Markit Eurozone Services PMI Mar P /24/ :30 EC Markit Eurozone Composite PMI Mar P /24/ :00 UK BBA Loans for House Purchase Feb /24/ :00 US Durable Goods Orders Feb P 1.10% 2.00% 03/24/ :15 US Markit US Manufacturing PMI Mar P /24-03/31 IN Eight Infrastructure Industries Feb %

14 KNOWLEDGE CENTRE How Importers And Exporters Could Use A Forex Hedge To Minimise Losses An important tool in the global financial markets, hedging is used in every asset class to mitigate losses. This can be utilised by anyone, whether it is an individual or corporate, to overcome the negative impact of price volatility. For the corporate in which the business activity is dependent on import and export of commodities, there is an automatic exposure to foreign exchange and, hence, the need for hedging is higher. In the current context, since the world markets are interlinked, they eventually affect and impact the movement of currencies. Hedging, in any asset class, is ultimately a strategy to decrease or transfer risk in order to protect one's portfolio or business from uncertainty in prices. In case of hedging in the foreign exchange market, a participant who is entering a trade with the intention of protecting the existing position from an unexpected currency move, is said to have created a forex hedge. With the help of a forex hedge, a participant who is long in a foreign currency pair, can protect himself from the downside risk. On the other hand, a hedger who is short on a foreign currency pair will protect his existing position from the upside risk. The strategy to create a hedge would depend on the following parameters: (a) risk component (b) risk tolerance and (c) to plan and execute the strategy. The impact of the movement in the USD-INR currencies affects both importers and exporters. In other words, an importer will benefit when the rupee appreciates, while the exporter will gain when the rupee depreciates against the US dollar. The cost of import reduces when the rupee gains strength, thus benefiting an importer, and at the same time creating a loss for the exporter, since a stronger rupee will reduce the export remittances when converted to Indian rupees. In order to reduce the risks associated with these uncertain movements in the financial markets, both importers and exporters can utilize the derivatives platform of currency futures. By creating an equal and opposite position in the derivatives market, a hedge can be created.

15 KNOWLEDGE CENTRE How Hedging Works For An Importer Suppose an oil importer wants to purchase oil worth $1,00,000 and places his order on 11 March 2016, with the delivery date being three months away. At the time of placing the contract in the spot market, one US dollar is worth, say, Rs However, suppose the Indian rupee depreciates to Rs 69 per dollar when the payment is due in June 2016, the value of the payment for the importer goes up to Rs 69,00,000 rather than Rs 66,50,000. In this case, if the importer hedges the currency risk, the losses can be reduced. Here's how the hedging strategy for the importer would work: Buy 100 lots of USD June 2016 contracts on 11 th March 2016, assuming that June 2016 contract is trading at 67 on 11 th March Then in June 2016, He square off 100 lots USD at 69. Profit of Rs , i.e lot size* (69-67) *100. Then importer makes the payment of oil purchase at 69 per dollar Had the importer not hedged his position, he would have suffered a loss of Rs 2,50,000 (Rs 69,00,000 - Rs 66,50,000). However, by creating a hedge position on the futures platform, his losses were reduced to Rs 50,000 due to profits in currency hedge. How An Exporter Can Use Hedging A Jeweller, who is exporting gold jewellery worth US$50,000 in March 2016, wants protection against a possible appreciation in the Indian rupee in June 2016 (spot Rs 66.50), when he receives his payment. When he is required to make the payment in June 2016, suppose the rupee appreciates to 64. If, in this situation, he wants to lock in the exchange rate for the above transaction, his strategy would be as follows In March 2016, Sell 50 lots of June 2016 contract USD with a lot size of 1000,spot Assume that initially the Indian rupee depreciated, but later appreciated to 64 per USD as foreseen by the exporter at end of June Had the exporter not hedged his position, he would have suffered a loss of Rs 75,000, i.e. (50*1000*( )), but by creating a hedge he has made a profit of Rs 75,000 in the futures, offsetting his business loss. Hence, exposure management is essential, given the premise of a volatile foreign exchange market. Hedging in the currency markets, therefore, holds prime importance.

16 Technical Research Analyst(Equity and Currency): Vinay Rajani Research Analyst(Currency): Dilip Parmar HDFC securities Limited, I Think Techno Campus, Building - B, "Alpha", Office Floor 8, Near Kanjurmarg Station, Opp. Crompton Greaves, Kanjurmarg (East), Mumbai HDFC securities Limited, 4 th Floor, Above HDFC Bank, Astral Tower, Nr. Mithakadi 6 Road, Navrangpura, Ahmedabad , Gujarat. Phone: (079) / , Website: pcg.advisory@hdfcsec.com "HDFC Securities Ltd. is a SEBI Registered Research Analyst having registration no. INH " Disclosure: I/We, Vinay Rajani and Dilip Parmar, M.B.A., authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative or HDFC Securities Ltd. or its Associate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Further Research Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material conflict of interest. Any holding in underlying No Disclaimer: This report has been prepared by HDFC Securities Ltd and is meant for sole use by the recipient and not for circulation. The information and opinions contained herein have been compiled or arrived at, based upon information obtained in good faith from sources believed to be reliable. Such information has not been independently verified and no guaranty, representation of warranty, express or implied, is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. This document is for information purposes only. Descriptions of any company or companies or their securities mentioned herein are not intended to be complete and this document is not, and should not be construed as an offer or solicitation of an offer, to buy or sell any securities or other financial instruments. This report is not directed to, or intended for display, downloading, printing, reproducing or for distribution to or use by, any person or entity who is a citizen or resident or located in any locality, state, country or other jurisdiction where such distribution, publication, reproduction, availability or use would be contrary to law or regulation or what would subject HDFC Securities Ltd or its affiliates to any registration or licensing requirement within such jurisdiction. If this report is inadvertently send or has reached any individual in such country, especially, USA, the same may be ignored and brought to the attention of the sender. This document may not be reproduced, distributed or published for any purposes without prior written approval of HDFC Securities Ltd. Foreign currencies denominated securities, wherever mentioned, are subject to exchange rate fluctuations, which could have an adverse effect on their value or price, or the income derived from them. In addition, investors in securities such as ADRs, the values of which are influenced by foreign currencies effectively assume currency risk. It should not be considered to be taken as an offer to sell or a solicitation to buy any security. HDFC Securities Ltd may from time to time solicit from, or perform broking, or other services for, any company mentioned in this mail and/or its attachments. HDFC Securities and its affiliated company(ies), their directors and employees may; (a) from time to time, have a long or short position in, and buy or sell the securities of the company(ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions. HDFC Securities Ltd, its directors, analysts or employees do not take any responsibility, financial or otherwise, of the losses or the damages sustained due to the investments made or any action taken on basis of this report, including but not restricted to, fluctuation in the prices of shares and bonds, changes in the currency rates, diminution in the NAVs, reduction in the dividend or income, etc. HDFC Securities Ltd and other group companies, its directors, associates, employees may have various positions in any of the stocks, securities and financial instruments dealt in the report, or may make sell or purchase or other deals in these securities from time to time or may deal in other securities of the companies / organizations described in this report. HDFC Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve months. HDFC Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction in the normal course of business. HDFC Securities or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither HDFC Securities nor Research Analysts have any material conflict of interest at the time of publication of this report. Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. HDFC Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. Research entity has not been engaged in market making activity for the subject company. Research analyst has not served as an officer, director or employee of the subject company. We have not received any compensation/benefits from the Subject Company or third party in connection with the Research Report. This report has been prepared by the PCG Research team of HDFC Securities Ltd. The views, opinions, estimates, ratings, target price, entry prices and/or other parameters mentioned in this document may or may not match or may be contrary with those of the other Research teams (Institutional, Retail) of HDFC Securities Ltd.