May 23, 2009 USD/INR-SPOT

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1 Weekly Technical Recommendation CURRENCY S2 S1 PREV CLOSE R1 R2 Recommendations* USD/INR Sell at SL SL EURO/USD Buy at TP SL GBP/USD Buy at TP SL USD/JPY Sell at 96. TP SL 98 USD/INR-SPOT May 23, 2009 The partial convertible rupee strengthened by 4.58 % during this week of May, closing at per dollar at 5 pm close in Mumbai on 22 nd May 2009, against its last week closing of per dollar. The rupee posted its biggest gain in more than 13 years on hopes of reforms and renewed capital flows from foreign investors after the ruling UPA coalition under Manmohan Singh got a decisive term of office back to power. The expectations build with government to raise foreign investment limits in the retail and banking sectors, inject capital into state run banks, to get a guard from global crisis. The important data releases were U.S. ABC consumer Confidence and German economy Producers Price Index. The consumer confidence was lower than expected building on negative front, while the Producers Price Index came high, 2.3%, better than previous at - 8.6%, adding to Euro-zone faster recovery pace. The balance of payments will improve with increasing global needs and service exports growing in industrial economies. Foreigners have bought $2 billion in equity markets this month due to higher developments observed in the markets. Moreover, India s foreign-exchange reserves decreased by $1.73 billion so ending at $254 billion in this week of May. Foreign-currency assets decreased by $1.75 billion to $243 billion, while the nation s gold reserves remain unchanged to $923 million. India s special drawing rights with the International Monetary Fund remained the same at $1 million, and the positions in IMF increased by $13 million to $1.22 billion. The change in foreign-currency assets is partly because of fluctuations in the value of the dollar against the euro, yen and other currencies during the period. Taking forward market into consideration, the implied volatility of onemonth dollar-rupee options have jumped to 0.12, which is a measure of expected swing in exchange rates, as part of option prices. The arbitrage difference between onshore and offshore market i.e. NDF (Non deliverables Forwards) markets were trading at a premium during the week but closed at a discount of 0.03 against INR. Rupee holds the top position in the performance of the 10 most-traded currencies in Asia outside Japan, against dollar, last week. The Asian markets remained flat in the last week due to high amount of volatility. The Asian markets like Nikkei depreciated by 0.42 %, shanghai by 1.80% where as the Hangseng appreciated by 1.62%, and the Indian equity market appreciated by 14.08%, closing at The surging rally in INR escorted SENSEX to appreciate. The dollar index, a gauge of the U.S. unit's performance against majors, was running into red, and lost 3.72% in its value, closing at The Reserve Bank of India s reference rate for US dollar was Rs as on 22 nd May Indicators LAST 1-Week AGO % CHANGE LIBOR 1Mth LIBOR 3Mth MIBOR 1Mth MIBOR 3Mth U.S. 5Yr Bond Yield U.S. 10Yr Bond Yield India 5Yr Bond Yield India 10Yr Bond Yield Reference Rate CBLO Rate Call Rate CROSS LAST 1-Week AGO % CHANGE NIFTY SENSEX NASDAQ DOW JONES INDUSTRA SHANGHAI COMPOSIT NIKKIE HANGSENG The rupee has rebounded from its record lows due to new administration s stronger political mandate raising the prospect of a growth outlook, economic reforms, including infrastructure spending, privatization and deregulation and a more prudent fiscal policy. The Export Import Bank of India plans to raise about 200 billion rupees in FY09-10 for providing funding support to exporters and importers. Inflation for the week ended May 9 inched up to 0.61%, against 0.48% of previous week, but the appreciating rupee is expected to help in taming inflation and allow the new government to go ahead with steps to stimulate grow. Considering above factors, we expect Indian rupee to trade bullish against greenback.

2 Indian rupee made a gap down opening in the last week and continued the down trend and after making a low of closed at levels. The rupee broke the previous rising channel on the lower side which pulled down the prices to trade lower. The rupee has also breached the 50-week EMA, suggesting the trend to remain lower in the near term. Moreover, market has corrected till 38.2% of the to range. The momentum indicator weekly RSI is treading at 0.41 and expected to see further correction and the MACD is also signaling lower. Since, the marker has breached as crucial support levels; we may anticipate a brief correction in the next week. However, before the prices decline a higher correction can not be ruled out. The resistances can be seen at and then levels. If market sustains below the resistances levels may see the currency pair trading lower. On break of it is likely to extend the support to and then levels. We recommend taking short positions around targeting with stop loss above 48.20, closed at EUR/USD The first week of May witnessed EURO/USD traded higher with opening at and the pair closing at The pair gained 3.73%. The economies of the 16 countries that make up the euro-zone declined by 2.5% Y/Y in the first three months of 2009, the EU's statistics agency Euro stat said. The record decline in German GDP was led by falls in exports and investments. Year-on-year the German economy shrank by 6.7%. The euro-zone recorded an external trade surplus of 0.4 billion Euros in March after a deficit of 1 billion Euros in February. The ZEW survey showed hopes of economic recovery continuing to build this month. Hence, the closely monitored expectations component jumped a surprisingly large 18.1 points to With financial markets increasingly looking for additional indications that recovery is around the corner, today's report will no doubt boost hopes for positive economic growth before the end of the year. It may also allay some concerns about a possible prolonged period of deflation. However, the risk remains that expectations get ahead of themselves and that the current data fail to turn around quite as quickly as markets now seem to anticipate. After bleak figures for GDP in euro-zone countries last week showed the 16-nation block enduring its worst downturn for six decades. The EUR/USD should continue to follow its positive correlation with U.S. equities and maintain its relative strength against the dollar index for the week. The currency pair traded higher and after making a high of $ it settled at $ levels. Market moved up sharply breaking previous week s higher range. Now, the next immediate resistances can be seen at $ levels. However, before making a fresh high, market is likely to make a small correction and the supports can be seen at $ levels. IF market sustains above the support levels may see currency pair trading higher. The RSI is treading at 0.47 suggesting further upward movement for the prices. Moreover, the MACD is also signaling higher move. We expect the currency pair to trade higher and recommend taking long positions around $ levels targeting $ with stop loss below levels.

3 GBP/USD The British pound traded sideways to higher in the last week and settled at $ levels. The pound strengthened as much as 4.97 %. The FTSE 100 Index closed at this week, gaining close to 0.46 %. The Pound experienced a slightly positive reaction after Consumer price inflation moved closer to target again last month when a smaller than expected 0.2 % monthly rise in the CPI. In line with most EU central banks the BoE sees inflation slowing further over coming months. To this end the fact that the annual rate of the CPI is still above its 2 % target mid-point is likely of little consequence to monetary policy. Retail sales rose grew a stronger than expected 0.9 % on the month in April. As expected, the previously estimated first quarter downturn in economic activity was unrevised. Hence, the quarterly decline remains at 1.9 % to give the first ever back-to-back fall in excess of 1 %. The annual contraction in total output was also unmodified at 4.1 %. Despite widespread hopes that the worst is over - and the extent of destocking will boost such optimism - recent comments from the BoE have downplayed the chances of any quick economic recovery. However, the significant bounce in the currency against the U.S. dollar since early March, due to better economic indications, will help to ensure a sideways to higher trade for the week. The currency pair moved up so strongly witnessing a gain of more than 5% from the previous weeks close with settling this week at $ levels. Market has breached its 10 and 20-weeks EMA, suggesting the uptrend to remain intact. However, 50-weeks EMA is finding as a resistance levels. Hence a brief lower correction can be anticipated before it truly resumes further upward movement. The momentum indicator weekly RSI-14 is treading at 0.58 suggesting prices still have room to trade higher. We expect the currency pair to trade higher and recommend taking long positions around $ targeting $ with stop loss below $ levels. USD/JPY- SPOT The currency pair traded sideways last week and closed at It down casted by 0.45%. This showed that the Japanese Yen was gaining on its value due to affirmative economic results. The Japan Nikkei average index closed at , losing 0.42 % in this week, against its previous closing at As expected, the first quarter gross domestic product data were dreadful. GDP plunged 4.0% when compared with the previous quarter and sank 9.7% when compared with the previous year. The simultaneous recessions in the industrial economies has amplified the depth of this recession to make it the worst in Japan's post war history. The political impasse has left domestic policy dependent on the global recovery. While domestic consumption is showing a slight revival, cuts in household income due to rising unemployment and wage restraint is working against a domestic recover and the public sector is constrained by massive debt. As expected the Bank of Japan left its monetary policy unchanged. Its current key interest rate has been 0.1 % since its December 2008 policy meeting. The Bank said that the economic deterioration would moderate. It also said that although financial conditions are improving they still remain severe. They expect the economy to resume growth with price stability in the long run, however, uncertainty over the recovery remains high. For now the short-term trend on the Weekly USDJPY is sideways with the intermediate-term trend still higher, due to revival of economy.

4 The currency pair traded sideways to lower and moved in the range of to with settling the week at levels. Market has been declining for the past three consecutive weeks suggesting further down trend in the near term. Now, the next immediate support is seen at 93.0 and breach of the same it can test 92 and then levels. Further on, overall prices are trading in a downward trend suggesting the trend to remain lower. Likewise, a sort of short run head and shoulder pattern is seen in the weekly chart that is supporting the down trend. We expect the currency pair to trade lower and recommend taking short positions around for a possible target of with stop loss above levels. WEEKLY QUOTES Majors 5/22/2009 Px Open Px High Px Low Px Last EUR/USD GBP/USD CHF/USD USD/JPY AUD/USD CAD/USD

5 Prepared By Aurobinda Prasad Gayan Vinita Goyal

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