Currency Research Desk

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1 Currency weekly 10 June 2013 Global economic review Last week, the global market ended on a negative note. A similar INDICES LAST 1 week ago % Change NIFTY trend witnessed in the US equity markets too. ISM SENSEX manufacturing numbers declined from 50.7 to 49 due to slower NASDAQ consumption. Trade deficit widened from $38.8 billion to $40.3 DOW JONES INDUSTRIAL billion due to the faster pace of growth in imports compared to SHANGHAI COMPOSITE exports. ADP employment change and non-farm productivity NIKKIE increased at a slower pace due to lower job additions and lower HANGSENG income in the economy. The euro-zone and Germany's PMI FTSE Index numbers improved on the back of increasing consumption patterns, which supported the shared currency. The European CROSS LAST 1 week ago % Change Central Bank kept its interest rate unchanged. The 45 minute EURUSD ECB press conference was where chief Draghi stated that the GBPUSD euro-zone s inflation in 2013 would be 1.4% with a target of USDJPY % is in 2014 in order to fix the recessionary situation. The USDCAD German trade balance and current account balance increased USDCHF more than expected, with improvements in imports and exports. USDSEK Last week, Japan s vehicle sales contracted 7.30%, coupled with DOLLAR INDEX weak capital spending. Foreign buying of Japanese bonds and stocks declined last week on the back of ongoing economic concerns. Japan'x official reserve assets declined from $1258 billion to $1250 billion. From China, non-manufacturing PMI slipped from 54.5 to HSBC manufacturing has slowed from 50.4 to 49.2 due to a decline in new export orders as well as new orders. Chinese imports declined more than export trades. India s PMI manufacturing numbers declined to 50.1 from 51 due to lower export trades. India s service sectors showed improvement on the back of improving industrial production Dollar Index Currency S2 S1 Close R1 R2 Recommendation Dollar Index Range TECHNICALSNAPSHOT:- The dollar ended the week at the level, shedding more than 2.7% for the week. It witnessed a high of and a low of It has broken below the upward moving trend-line on the weekly charts. Going by the fibonacci projections, the dollar has retraced 61.8% of its swing high and swing low of On the daily chart, the candlestick pattern depicts a tweezer bottom formation. There is a cluster of evidence stating that strong support could be found at close to the 81 levels and a pullback could be expected in the coming days if it manages to sustain above those levels. However, a breach below 81 could propel further selling and lead it to support at the and80.10 levels. The resistance is at followed by the 83 level. Overall, we expect the dollar to trade in a range of levels for the week and recommend selling on pullbacks 1

2 USD/INR Currency Contract S2 S1 Close R1 R2 Recommendation USDINR- MCX-SX June Buy at TP then SL Below USDINR-NSE June Buy at TP then SL Below Fundamental Review Last week, the rupee depreciated around a percent against the dollar and settled at from previous close at The Nifty and Sensex index lost 1.75% and 1.68% last week, settling at 5881 and respectively, supporting the downside in the rupee. The weakness in the domestic indices was due to the foreign institution investor (FII) statistics showing a net outflow of $39.66 million. Foreign currency assets fell $3.06 billion to $258.5 billion in FOREX reserve holdings which influenced the rupee last week. India s HSBC PMI manufacturing data declined from 51 to 50.1 while services improved slightly. On the global front, Asian equities closed on a negative note led by the Japanese Topix and Nikkei indices which fell more than 6% last week. This reflected on domestic indices as well as on the rupee. However, the euro settled on a positive note at against the dollar, up 1.68%. The dollar index fell 2.05% against the key currencies and settled at MCX-SX Jun % % % Jul % % % Aug % % % NSE Jun % % % Jul % % % Aug % % % Fundamental Outlook: In the coming week, we expect the rupee to extend its weakness further against the dollar. Declining foreign currency holdings in the FOREX reserve may weaken the rupee. India will release its import and export data. Import trades are expected to increase at a faster pace compared to exports due to higher gold import in May. India s car sales are likely to decline on the back of lower consumer spending. Industrial production is also expected to slow down on the back of lower manufacturing activities and lower capital investment. India s Wholesale Price Index is likely to increase at a slower pace on the back of rising oil prices and inflation in the retail sector. At the global front, The Bank of Japan's interest rate decision will be keenly awaited, where the BoJ is likely to keep its interest rate unchanged and maintain its asset purchase program. Japan will release its GDP growth data, which is expected to improve on the back of continued monetary easing. Expectations of a weak GDP deflator may offset the gains from better GDP numbers. This may reflect on domestic indices and the rupee as well. from Europe, the Central Bank has clearly indicated that the euro-zone's economy could revive in the last quarter of 2013 and may post a positive growth. German consumer and wholesale prices are expected to improve, backed by the improvement in the trade data. The euro-zone's industrial production is expected to decline due to higher unemployment and weakness in consumption. Overall, we expect the shared currency to remain slightly positive and limit the rupee's losses. The US will release its NFIB Small Business Optimism, Wholesale Inventories, Advance Retail Sales and Michigan Confidence number. The economic data may limit the dollar's losses next week. Overall, we expect the rupee to trade on a weaker note against the dollar 2

3 Economic data for week ahead Date Time Region Event Period Survey Prior JUN IN Imports YoY% May JUN IN Exports YoY% May /12/ :00 IN Industrial Production YoY Apr 2.30% -- 06/14/ :00 IN Monthly Wholesale Prices YoY% May 4.86% -- TECHNICALSNAPSHOT:- The rupee ended on a positive note at the level for the fifth consecutive week, a gain of 1% or 0.56 paisa. During the week, the rupee witnessed a high of and a low of During the same period a year ago, the rupee touched an alltime high of ( ). A level which it couldn t sustain followed by a sharp decline over the following week to hit a low at level on ( ). This is clearly an important level to watch out for in the coming week and, the subsequent reaction that arises out of it should lead to a new move in price direction. The overhanging supply factor could be crucial at this level (57.32).This move in the rupee was supported by a rise in the relative strength index from 64 last week to 67 this week. On the daily chart, the average directional index has moved to the 45 level, suggesting a strongly trending market. However, the same has not been reflecting in the weekly charts where the average directional index is still at 14 (suggesting a lackluster market on a weekly time frame ). On the daily charts, a vertical rise from to has led to the formation of too many internal trend-lines. This upmove may continue as long as there is no valid breach of the last formed internal trend-lines. Overall we expect the rupee to trade in a range of levels for the week and recommend buying on declines Recommendation: USDINR (Spot) : Buy at TP then SL Below USD/INR-JUNE-MCX-SX/NSE: Buy at TP then SL Below

4 EUR/USD Currency Contract S2 S1 Close R1 R2 Recommendation EURUSD SPOT Buy at TP SL Below EURINR-MCX-SX June EURINR-NSE June Buy at TP SL Below Buy at TP SL Below Fundamental Review Last week, the euro appreciated 1.68% against the dollar and settled at from the previous close of The euro-zone and Germany's PMI numbers improved on the back of increasing consumption patterns, which supported the shared currency. The European Central Bank kept its interest rate unchanged. The 45 minute press conference by ECB chief Draghi where he stated that the euro-zone s inflation in 2013 would be 1.4% with a target of 1.3% is in 2014 in order to fix the recessionary situation. The German trade balance and current account balance increased more than expected, with improvements in imports and exports. The above factors supported the euro in last week MCX-SX Jun % % % Jul % % % Aug % % % NSE Jun % % % Jul % % % Aug % % % Fundamental Outlook In the coming week, we expect the euro to trade on a positive note against the dollar. The European Central Bank has clearly indicated that the euro-zone's economy would revive in the last quarter of 2013 and may post a positive growth in the next year (2014). The German consumer and wholesale prices are expected to improve, backed by the improving trade balance. The eurozone industrial production is expected to decline due to higher unemployment and weakness in consumption. Economic data for week ahead Date Time Region Event Period Survey Prior 06/10/ :00 EC Sentix Investor Confidence Jun /12/ :30 GE Consumer Price Index (MoM) May F 0.40% -- 06/12/ :30 EC Euro-Zone Ind. Prod. sa (MoM) Apr 0.00% -- 06/13/ :30 GE Wholesale Price Index (MoM) May /13/ :30 EC ECB Publishes Monthly Report 06/14/ :30 EC Euro-Zone CPI (MoM) May 0.10% -- 4

5 Technical snapshot:- The euro ended the week at , a gain of 1.75%. The pair witnessed a high of and a low of In doing so, it has clearly broken out of the descending triangle formation on the weekly chart which could have bullish implications in the intermediate term. This move has been further supported by an uptick in the relative strength index which has gone up from 48 to the 55 levels. Going by the Fibonacci projections, it has retraced more than 50% (1.3230) of its swing range ( ) but fell short of testing the 61.8% retracement level at by points. Overall, we could expect the euro to trade in a range of for the week and recommend buying on declines 5

6 GBP/USD Currency Contract S2 S1 Close R1 R2 Recommendation GBPINR-MCX-SX June GBPINR-NSE June GBPUSD SPOT Buy at TP SL Below Buy at TP SL Below Buy at TP SL Below Fundamental Review : Last week, the pound appreciated 2.37% against the dollar and settled at The UK's PMI has improved from 49.8 to 51.3, supporting the pound against the dollar. PMI construction numbers have improved due to higher demand for property. New car registrations also showed improvement at a slower pace. Last week, the Bank of England kept its interest rate unchanged and maintained its 375 billion pound asset purchase program MCX-SX Jun % % % Jul % % % Aug % % % NSE Jun % % % Jul % % % Aug % % % Economic data for week ahead: Date Time Region Event Period Survey Prior 06/11/ :00 UK Industrial Production (MoM) Apr 0.00% -- 06/11/ :00 UK Manufacturing Production (MoM) Apr -0.20% -- 06/14/ :00 UK Construction Output YoY Apr -4.10% -- Fundamental Outlook In the coming week, we expect the pound to trade on a weaker note against the dollar. The UK will release its industrial production which is likely to remain weak in the month of April due to lower manufacturing activity. The construction activity is also expected to remain lower 6

7 Technical snapshot The cable ended the week at the level, a gain of 2.41%. This has been the highest closing in the last 5 weeks. The other crucial level is the 200-day exponential moving average level on the daily chart which is at Subsequent closes above that level could inhibit further bullishness in the coming days. However, sustaining below the same could cause some profit booking. Going by the Fibonacci projections, the cable has retraced more than the 50% (1.5600) of its swing range ( ). Sustaining above this could lead towards its 61.8% level (1.5780).Supporting the upmove has been the relative strength index, which moved up from 41 to 52. Overall, we could expect the cable to trade in a range of and recommend buying on declines. 7

8 USD/JPY Currency Contract S2 S1 Close R1 R2 Recommendation JPYINR-MCX-SX June Buy at TP SL Below JPYINR- NSE June Buy at TP SL Below USD/JPY SPOT Sell at TP then 94.5 SL Above 101 Fundamental Review Last week, the yen appreciated 2.88% against the dollar and settled at from the previous close of The weakness in Japanese equities, especially the Topix and Nikkei indices which fell around 6.94% and 6.51% respectively supported the yen to appreciate against the dollar. Last week, Japan s vehicle sales contracted by 7.30%, coupled with weak capital spending. Foreign buying of Japanese bonds and stocks declined last week on the back of ongoing economic concerns. Japan's official reserve assets declined from $1258 billion to $1250 billion MCX-SX Jun % % % Jul % % % Aug % 12 #VALUE! 4 #VALUE! NSE Jun % % % Jul % % % Aug % % % Economic data for week ahead Date Time Region Event Period Survey Prior 06/10/ :20 JN GDP Deflator YoY 1Q F -1.20% -- 06/10/ :20 JN Gross Domestic Product (QoQ) 1Q F 0.90% -- 06/10/ :20 JN Current Account Total Apr 350.0B -- 06/11/2013 JN Bank of Japan Monetary Policy 06/11/2013 JN BOJ Target Rate 11-Jun Fundamental Outlook In the coming week, the Bank of Japan's interest rate decision will be keenly awaited in the markets. The BoJ is likely to keep its interest rate unchanged and maintain its asset purchase program. Japan will release its GDP data which is expected to improve on the back of continued monetary easing by the Bank of Japan while weak expectations of the GDP deflator may offset gains that occur from the better GDP numbers. Japan's trade balance is likely to decline on the back of higher exports compared to imports. This should weigh down on the current account balance. Overall, we expect the yen to trade on a weaker note against the dollar in the coming week. 8

9 Technical Snapshot:- The yen ended the week on a bearish note at levels, shedding 2.87 %.It witnessed a high of and a low of levels. For a brief period in the week, the pair broke and traded much below the lower end of the rising trend channel but recouped losses to close marginally below the channel. Supporting the weakness has been the relative strength index which has dropped sharply from the 69 levels last week to 59. Overall, we could expect the yen to trade in a range of levels for the week and recommend selling on pullbacks Major economic events for the week Date Time Region Event Period Survey Prior 06/08/ :30 US Consumer Credit Apr $12.900B $11.058B 06/08/ :43 CH Trade Balance (USD) May $20.00B $20.43B 06/08/ :43 CH Exports YoY% May 7.40% 1.00% 06/08/ :43 CH Imports YoY% May 6.60% -0.30% JUN CH New Yuan Loans May 815.0B JUN CH Money Supply - M2 (YoY) May 15.90% -- 06/09/ :00 CH Consumer Price Index (YoY) May 2.50% -- 06/09/ :00 CH Producer Price Index (YoY) May -2.50% -- 06/09/ :00 CH Industrial Production YTD YoY May 9.40% -- 06/09/ :00 CH Retail Sales YTD YoY May 12.60% -- 06/10/ :20 JN GDP Deflator YoY 1Q F -1.20% -- 06/10/ :20 JN Nominal GDP (QoQ) 1Q F 0.40% -- 06/10/ :20 JN GDP Annualized 1Q F 3.50% -- 06/10/ :20 JN Gross Domestic Product (QoQ) 1Q F 0.90% -- 06/10/ :20 JN Current Account Total Apr 350.0B -- 06/10/ :20 JN Adjusted Current Account Total Apr 380.0B -- 06/10/ :20 JN Trade Balance - BOP Basis Apr B -- 06/10/ :30 JN Consumer Confidence May /10/ :00 EC Sentix Investor Confidence Jun JUN IN Imports YoY% May JUN IN Exports YoY% May JUN IN India Local Car Sales May /11/ :30 JN Machine Tool Orders (YoY) May P /11/ :00 UK Industrial Production (MoM) Apr 0.00% -- 06/11/ :00 UK Manufacturing Production (MoM) Apr -0.20% -- 06/11/ :00 US NFIB Small Business Optimism May

10 06/11/ :30 US Wholesale Inventories Apr 0.20% -- 06/11/2013 JN Bank of Japan Monetary Policy Statement 06/11/2013 JN BOJ Target Rate 11-Jun /12/ :20 JN Machine Orders (MoM) Apr -8.20% -- 06/12/ :00 IN Industrial Production YoY Apr 2.30% -- 06/12/ :30 GE Consumer Price Index (MoM) May F 0.40% -- 06/12/ :30 EC Euro-Zone Ind. Prod. sa (MoM) Apr 0.00% -- 06/12/ :30 US MBA Mortgage Applications 7-Jun /12/ :30 US Monthly Budget Statement May -$110.0B -- 06/12/2013 IN CPI (YoY) May 9.00% -- 06/13/ :20 JN Japan Buying Foreign Bonds 7-Jun /13/ :20 JN Japan Buying Foreign Stocks 7-Jun /13/ :20 JN Foreign Buying Japan Bonds 7-Jun /13/ :20 JN Foreign Buying Japan Stocks 7-Jun /13/ :30 GE Wholesale Price Index (MoM) May /13/ :30 EC ECB Publishes Monthly Report 06/13/ :00 US Advance Retail Sales May 0.40% -- 06/13/ :00 US Retail Sales Less Autos May 0.30% -- 06/13/ :00 US Initial Jobless Claims 8-Jun 345K -- 06/13/ :00 US Continuing Claims 1-Jun 2984K -- 06/14/ :00 IN Monthly Wholesale Prices YoY% May 4.86% -- 06/14/ :00 US Current Account Balance 1Q -$111.0B -- 06/14/ :25 US U. of Michigan Confidence Jun P Prepared by:- Aurobinda Prasad (aurobind@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