Currency Research Desk

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1 Currency weekly Currency Research Desk 22-Aug-14 Global Economic Review & Outlook- Global markets this week have continued with their appreciating trend from the previous week. The US equity indices have led the rally with the S&P 500 index opening at 1992 on Friday. The positive exuberance emanating out of the US equity markets have cascaded into a positive driving force for most of the equity markets across the globe, except for the European markets, which seem to have been reeling under disappointing economic data for the last few weeks. The Indian equities along with the other Asian markets has appreciated this week, with the benchmark index making a new high and closing above 7900 this week. INDICES LAST 1 week ago % Change NIFTY SENSEX NASDAQ DOW JONES INDUSTRIA SHANGHAI COMPOSITE NIKKIE HANGSENG FTSE Index There have been many major economic data points that have been released this week, the major events that can be listed out are the FOMC minutes release, wherein some members of CROSS LAST 1 week ago % Change the FED committee were in favor of an accelerated rate hike if EURUSD the jobs situation continued getting better at the current rate GBPUSD and, among other important releases, EU and UK regions have USDJPY come out with disappointing economic data with starting with USDCAD the British CPI (YOY) came in lower at 1.6%, and the retail USDCHF sales too came in lower at 2.6% against a market expectation USDSEK of 3.0%. From the Euro area, the disappointment seems to have continued this week as well. The European and German DOLLAR INDEX manufacturing and services PMI came in lower than expected and resulted in the Euro and Pound depreciate further from last week s lows. At last count, Euro was trading at against a close of last week, and Pound at against a closing of The biggest winner was the dollar index which has gained on the merit of the US economy, and also because of the depreciating Euro and Pound. The dollar index has ended at against last week s closing of Dollar Index: S2 S1 CLOSE R1 R2 RECOMMENDATION Dollar Index Buy near 81.8 TGT 82.9 SL 81.3 Fundamental Outlook- US Dollar recorded strong performance this week with the Index touching multi-month higher near the mark as a comparative performance of the USD against basket of 6 major currencies globally. We had some important readings over housing and manufacturing this week while markets also took cues from the US FED s minutes of the July month monetary policy. The week would start with the New Home Sales reading wherein the reading is probably likely to take some guidance from the stronger housing starts and existing home sales reading for July, both of which surpassed markets estimates. Our hopes for a positive reading also count on the fact that in June, New Home Sales contracted by over 8% so some pent-up buying might also support well. Other than this, the same day traders also track the Chicago Fed Nat Activity Index and the Markit US Composite PMI wherein both are seen improving. There are host of data points to be watched from the US next week, wherein on Tuesday the Durable Goods Orders is seen to be the key. The reading is also seen popping eyes as US orders are expected to rise by around 7.5% boosted by some heavy bookings for transportation and aircraft segments. However, core Durable Goods is expected to add marginally in the month of Currency Research Desk Mail Us at currencyresearch@karvy.com 1

2 July. The same day we have the S&P-CaseShiller Home prices data wherein prices increase is expected to continue slowdown in major cities whereas separate reading might show Consumer Confidence Index remained steady to higher in the world s largest economy. Wednesday is mostly seen dull while markets await the critical revised Q2 GDP reading. As per early estimates, economy is most likely to hold near the 4% growth mark, as reported in the initial estimates earlier. The same day later we have the Pending Home Sales reading which is expected to improve as also been the case in the other lagging housing indicator the, existing home sales which came strong this week. Lastly on the last day of the week, Personal Income/ Spending, Chicago PMI and the Univ. of Michigan Confidence all too are expected to see continued amelioration. So net-to-net traders should be ready for huge amount of economic data flow from US in the coming week while most of them are expected to maintain stability to optimism about the health of the world s largest economy. Also traders note that we await critical cues from the so-called Jackson Hole meeting at Wyoming. The Fed Chair would speak in the meet today night (IST) whereas ECB President Mario Draghi is set to make his speech tomorrow. Any major comments there could cast good volatility on the international currency space on Monday morning. Leaving that uncertainty and also the fact that EU too records good amount of data next week; US data internally looks to continue supporting the positivity about the economy which may be once again reflected onto the Greenback. Nevertheless, we feel pace of gains may be a bit low next week as we have already seen good upmove in the international reserve currency this week. TECHNICAL SNAPSHOT: Dollar Index traded with optimism this weak and the possibility of moving further upward to test resistance 83 remains open in the coming week. On the downside 80.7 followed by trendline breakout point near shall provide good support. Currency Research Desk Mail Us at currencyresearch@karvy.com 2

3 Economic data for the week ahead Date Time Country/Region Event Period Surv(M) Prior 08/25/14 18:00 US Chicago Fed Nat Activity Index Jul 20.0% 12.0% 08/25/14 19:15 US Markit US Composite PMI Aug P /25/14 19:15 US Markit US Services PMI Aug P /25/14 19:30 US New Home Sales Jul 425K 406K 08/25/14 19:30 US New Home Sales MoM Jul 4.7% -8.1% 08/25/14 20:00 US Dallas Fed Manf. Activity Aug /26/14 18:00 US Durable Goods Orders Jul 7.5% 0.7% 08/26/14 18:00 US Durables Ex Transportation Jul 0.4% 0.8% 08/26/14 18:30 US S&P/CS 20 City MoM SA Jun -0.1% -0.3% 08/26/14 18:30 US S&P/CaseShiller Home Price Index NSA Jun /26/14 19:30 US Consumer Confidence Index Aug /26/14 19:30 US Richmond Fed Manufact. Index Aug /27/14 16:30 US MBA Mortgage Applications % 08/28/14 18:00 US GDP Annualized QoQ 2Q S 3.9% 4.0% 08/28/14 18:00 US Personal Consumption 2Q S 2.4% 2.5% 08/28/14 18:00 US Initial Jobless Claims K 08/28/14 18:00 US Continuing Claims K 08/28/14 19:30 US Pending Home Sales MoM Jul 0.5% -1.1% 08/28/14 19:30 US Pending Home Sales YoY Jul % 08/28/14 20:30 US Kansas City Fed Manf. Activity Aug /29/14 18:00 US Personal Income Jul 0.3% 0.4% 08/29/14 18:00 US Personal Spending Jul 0.2% 0.4% 08/29/14 19:15 US Chicago Purchasing Manager Aug /29/14 19:25 US Univ. of Michigan Confidence Aug F Indian Rupee CURRENCY CONTRACT S2 S1 CLOSE R1 R2 RECOMMENDATION USDINR-MCX-SX Sep/ Buy near TGT 61.3 SL USDINR-NSE Sep/ Buy near TGT 61.3 SL USDINR- Spot Buy TGT 61.2 SL Currency Research Desk Mail Us at currencyresearch@karvy.com 3

4 Economic data for week ahead- Date Time Country/Region Event Period Surv(M) Prior 08/25/14-08/31/14 IN Eight Infrastructure Industries Jul % 08/27/14 15:00 IN India to Sell INR 90Bln 91-Day Bills 08/29/14 16:00 IN Fiscal Deficit INR Crore Jul /29/14 17:30 IN GDP YoY 2Q % TECHNICAL SNAPSHOT: INR spot price continued gradual fall last week as well and with a sequence of a higher lows Price has breached the good support area around indicating towards underlying lack of strength A rising trendline support near also has been violated which suggests that price may test the next support near in the coming sessions ahear of recovery. EUR/USD CURRENCY CONTRACT S2 S1 CLOSE R1 R2 RECOMMENDATION EURUSD Spot Sell 1.33 TGT SL EURINR-MCX-SX Sep Sell near TGT 79.4 SL 81.3 EURINR-NSE Sep Sell near TGT 79.4 SL 81.3 Currency Research Desk Mail Us at currencyresearch@karvy.com 4

5 Fundamental Outlook The week gone by has been a disappointing one as far at the euro zone is concerned. Less than expected results in the form of manufacturing and services PMI have led to the continued fall in the European equities and currencies. The Euro has lost almost 0.75 percent with respect to the dollar this week and is continuing to trade lower. All eyes would be watching the Jackson symposium closely this week to gain any insight into what actions would be announced by the ECB chairman during his speech. We believe there would not be any market changing announcement during this symposium, and the ECB chairman would continue with his dovish stand during his speech. In terms of economic data, markets would be closely watching the Euro zone CPI data that is to be released on Friday. With the chance of coming out with yet another disappointing economic result, we believe that the euro would continue with its depreciating trend in the coming week as well. Economic data for week ahead Date Time Country/Region Event Period Surv(M) Prior 08/25/14 13:30 GE IFO Business Climate Aug /25/14 13:30 GE IFO Current Assessment Aug /25/14 13:30 GE IFO Expectations Aug /27/14 11:30 GE Import Price Index MoM Jul 0.0% 0.2% 08/27/14 11:30 GE Import Price Index YoY Jul -1.4% -1.2% 08/27/14 11:30 GE GfK Consumer Confidence Sep /28/14 13:25 GE Unemployment Change (000's) Aug -5K -12K 08/28/14 13:25 GE Unemployment Rate Aug 6.7% 6.7% 08/28/14 13:30 EC M3 Money Supply YoY Jul 1.5% 1.5% 08/28/14 13:30 EC M3 3-month average Jul 1.4% 1.1% 08/28/14 14:30 EC Economic Confidence Aug /28/14 14:30 EC Industrial Confidence Aug /28/14 14:30 EC Consumer Confidence Aug F /28/14 14:30 EC Services Confidence Aug /28/14 14:30 EC Business Climate Indicator Aug % 08/28/14 17:30 GE CPI MoM Aug P 0.0% 0.3% 08/28/14 17:30 GE CPI YoY Aug P 0.8% 0.8% 08/29/14 11:30 GE Retail Sales MoM Jul 0.2% 1.3% 08/29/14 11:30 GE Retail Sales YoY Jul % 08/29/14 14:30 EC Unemployment Rate Jul 11.5% 11.5% 08/29/14 14:30 EC CPI Estimate YoY Aug 0.3% 0.4% 08/29/14 14:30 EC CPI Core YoY Aug A 0.8% 0.8% Currency Research Desk Mail Us at currencyresearch@karvy.com 5

6 TECHNICAL SNAPSHOT: Euro Spot traded on weak note last week with no signs of any possible recovery from current levels. Momentum indicator is staying within negative territory near exhibiting underlying weakness in the momentum. On daily technical setup, 21-weeks EMA is showcasing negative signs as moving further downward and acting as immediate resistance. Immediate support can be found near followed by 1.34 as strong one. GBP/USD CURRENCY CONTRACT S2 S1 CLOSE R1 R2 RECOMMENDATION GBPUSD Spot Sell near TGT 1.63 SL GBPINR-MCX-SX Sep Sell near TGT 99.8 SL GBPINR-NSE Sep Sell near TGT 99.8 SL Economic data for week ahead: Date Time Country/Region Event Period Surv(M) Prior 08/25/14-08/29/14 UK Nationwide House PX MoM Aug 0.0% 0.1% 08/25/14-08/29/14 UK Nationwide House Px NSA YoY Aug 10.0% 10.6% Currency Research Desk Mail Us at 6

7 08/28/14 14:00 UK Lloyds Business Barometer Aug /28/14 15:30 UK CBI Reported Sales Aug /29/14 04:31 UK Hometrack Housing Survey MoM Aug % 08/29/14 04:31 UK Hometrack Housing Survey YoY Aug % 08/29/14 04:35 UK GfK Consumer Confidence Aug TECHNICAL SNAPSHOT:. GBP spot price continued falling sharply as expected during the last week as well. As on Friday afternoon price is trading at and melting towards the support level of and the same will ensure 38.2% retracement of bullish move began in August month last year. Nearest resistance lies at however no major recovery is expected this week in the cable. USD/JPY CURRENCY CONTRACT S2 S1 CLOSE R1 R2 RECOMMENDATION USDJPY Spot Buy near TGT SL JPYINR-MCX-SX Sep Sell near TGT 57.7 SL JPYINR-NSE Sep Sell near TGT 57.7 SL Currency Research Desk Mail Us at 7

8 Fundamental Outlook: We have seen huge losses coming into the JPY wherein currency fell more than 1.25% against the US Dollar amidst sustained backing for US Dollar led by positive economic cues there and weaker set of data releases locally in Japan making double whammy for the country s currency. In the next week we have the Cabinet Office Monthly Economic Report for August wherein developments and expectations about the broader direction in the economic would be watched and could create some volatility in the pair. Bias however, might continue on the weaker side as also seen in the Q2 GDP and later in the Trade Balance and All Industries Activity index released lately. Following this, we have host of other data releases namely National CPI, Retail Sales, Industrial Production, Housing Starts and Construction Orders amongst others on Friday. While CPI gauge is mostly seen stable, Retail sales and Industrial Production would be the ones closely watched. Initial expectations in IP show moderate increase post contraction in June month and would be closely tracked. While large number of data on the other side Pacific, may create some external pressure on the JPY; its own numbers seem to be stable next week and probably we might see a ranged to modestly positive trading in the currency. There are no major cues to watch from Chinese territory in the coming week. Economic data for week ahead- Date Time Country/Region Event Period Surv(M) Prior 08/26/14 05:20 JN PPI Services YoY Jul 3.7% 3.6% 08/26/14 10:30 JN Small Business Confidence Aug /26/14 JN Cabinet Office Monthly Economic Report for August 08/29/14 05:00 JN Jobless Rate Jul 3.7% 3.7% 08/29/14 05:00 JN Job-To-Applicant Ratio Jul /29/14 05:00 JN Overall Household Spending YoY Jul -2.9% -3.0% 08/29/14 05:00 JN Natl CPI YoY Jul 3.4% 3.6% 08/29/14 05:00 JN Natl CPI Ex Fresh Food YoY Jul 3.3% 3.3% 08/29/14 05:20 JN Retail Trade YoY Jul -0.1% -0.6% 08/29/14 05:20 JN Retail Sales MoM Jul 0.3% 0.4% 08/29/14 05:20 JN Large Retailers' Sales Jul -0.6% -1.8% 08/29/14 05:20 JN Industrial Production MoM Jul P 1.3% -3.4% 08/29/14 05:20 JN Industrial Production YoY Jul P -0.1% 3.1% 08/29/14 09:30 JN Vehicle Production YoY Jul % 08/29/14 10:30 JN Housing Starts YoY Jul -10.4% -9.5% 08/29/14 10:30 JN Annualized Housing Starts Jul 0.871M 0.883M 08/29/14 10:30 JN Construction Orders YoY Jul % Currency Research Desk Mail Us at currencyresearch@karvy.com 8

9 TECHNICAL SNAPSHOT: JPY Spot traded bullish bias this week as per the expection mentioned in our report last week and is heading towards the resistance area near 104 Note that price has been confined within for over half year now. This is the first time after March 14 that price has shown bullish bias or depreciation of JPY spot. JPY has nearest support around followed by A sustainable break above 104 shall fuel the posisiblity of further weakness in JPY spot and touching next resistance area near Prepared by:- Aurobinda Prasad (aurobinda@karvy.com) Research Head Jitendra Parashar (jitendra.parashar@karvy.com)-technical Analyst Rakesh Chelapareddy (rakesh.chelapareddy@karvy.com) Fundamental Analyst DisclaimerThe 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 Currency Research Desk Mail Us at currencyresearch@karvy.com 9

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