Currency Research Desk

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1 Currency Research Desk Currency weekly September 15, 2012 Global economic review Economic performance Indian rupee ended the week at Friday the domestic currency appreciated by 2 percent as both domestic and international new supported the currency. The dollar Index weakened and fell beyond 79 levels as Federal Reserve declared to enter into open ended mortgage bond buying program and continue its Operation Twist till end of the year extend the duration of keeping its interest rates low. The Domestic equity market ended the week in optimism with Nifty rallied above 5500 levels. Indian government took some bold steps on policy front by hiking diesel price and opening up FDI in aviation, multi brand retail and broadcasting. These steps will once again renew foreign investor s confidence which was shaken by India s political problem. Risky assets performed all across the globe with all the major equities rallied. S&P 500 and Dow Jones rallied and are near there European Equity indices like DAX and CAC also went up. Most of the currencies gained against dollar Major events RBI s monetary policy meeting Bank of Japan s interest rate decision CROSS LAST 1 week ago % Change EURUSD GBPUSD USDJPY USDCAD USDCHF USDSEK DOLLAR INDEX INDICES LAST 1 week ago % Change NIFTY SENSEX NASDAQ DOW JONES INDUSTRIAL SHANGHAI COMPOSITE NIKKIE HANGSENG FTSE Index Dollar Index Currency S2 S1 Close R1 R2 Recommendation Dollar Index TECHNICAL SNAPSHOT As we expected Dollar Index continued to decline further and was down by -1.75%. Last week Dollar index breached the support 38.2% Fibonacci retracement for upward rally range ( ) and currently it s trading near the next major support of 50 retracement of the same rally. Momentum Indicator RSI-14 also declined from and suggesting downward momentum in the Index. For this week, as mentioned above major support is witnessing around of 50% retracement level if Dollar Index breaches and sustains below it then may decline up to next support level of of 61.8 Retracement. However the overall trend is for the near term is still looking bearish and beach of 50% retracement will confirm the further the downward move in the Index. From above analysis we recommend to sell on pull backs and support for this week are witnessing at then Sell at TP then SL Currency Research Desk Mail Us at currencyresearch@karvy.com 1

2 USD/INR Currency Contract S2 S1 Close R1 R2 Recommendation USDINR MCX-SX Sep USDINR NSE Sep Sell at TP then SL above Sell at TP then SL above The Week Ahead India s RBI monetary policy will be on focus Dollar index to remain range bound after falling this week Fundamental Review Last week rupee rallied against the greenback towards the end of the week. USD/INR pair gave a closing around Friday rupee appreciated almost 2 percent as an intraday gain. India s inflation number came higher than expected and stood at 7.55 percent against 6.87 percent in previous month. However currency market shrugged off the news of high inflation and rupee continued to appreciate. Dollar index declined and fell below 79 levels as Federal Reserve finally embarked into another round of bond buying to pump up the US economy. On the domestic front, Indian government took some bold steps on policy front which was long been pending. Government hiked diesel price and opened the FDI floodgates in aviation and multi brand retail. MCX-SX NSE Outlook India s UPA government finally repaired their tarnished image by exhibiting their political will to turn around the economic situation of the country. Indian government proved on Friday what difference a day can make to the economy. A series of policy reforms were activated despite of many states crying foul. A diesel price hike to tackle government expenditure and opening up doors to the FDI in aviation, multi brand retail, single brand retail, broadcasting and power segment was a welcoming move for Investors. It will now create a more predictable business and investment climate. Such a move will definitely woo back a lot of Foreign Investors who pulled out their money from the country on the ground of overwhelming political risk the country faced. Beginning of this week we have RBI s monetary policy and we believe that central bank will continue to target inflation as the figure once again jumped above 7 percent level due to high food price. Despite government s bold action on policy, RBI might not be able to surprise market with a repo or reverse repo cut this time due to high inflation figures. Now coming to the US economy, Fed Chairman Ben Bernanke finally unleashed his QE weapon to support the economy for a few more years before it trod a sustainable path of growth with desired level of employment. Going forward market might shift their focus to the US automatic federal budget cut of $109 billion which will kick in from next year if nothing is done by the lawmaker to stop it. Along with fiscal cliff comes the downgrading threat to the US s most coveted triple A rating as Moody s has already issued an warning signal. Overall we can expect rupee to stay supported for the week due to positive development in the Indian economy, however investors will keep Euro zone and the US economy under surveillance for any new development. Currency Research Desk Mail Us at currencyresearch@karvy.com 2

3 TECHNICAL SNAPSHOT Last week, rupee experienced a drastic fall in the late sessions of the week and was down -1.91% W/W basics. On going through the chart, currently pair is trading below the previous highs of and is moving towards the next supports i.e of 38.2% Fibonacci retracement level for the upward rally range ( ). Applying the Ichimoku tool is also the witnessing strong supports around Momentum indicator RSI-14 which is currently trading at 0.51 is still tending towards down side till For the this week, we expect rupee could continue to decline further till the supports levels of and we advice to remain on selling side and for this week supports are witnessing at then and meanwhile resistance are seen at then Recommendation: Sell at TP then SL above Currency Research Desk Mail Us at currencyresearch@karvy.com 3

4 EUR/USD Currency Contract S2 S1 Close R1 R2 Recommendation EURUSD SPOT EURINR MCX- SX Sep EURINR NSE Sep Buy at TP then SL Range Range The Week Ahead Euro might come under pressure as some profit taking could be seen Fundamental Review Single currency maintained its happy mode for major part of the week Euro surged against the downtrodden US economy. Euro climbed above levels against the US dollar. ECB s bond buying program, German court ruling in favor of ESM fund and Fed s monetary stimulus, all supported the pair to rally higher. MCX-SX NSE Outlook Market had witnessed a lot of euphoria last week which kept the EUR/USD pair rallying. Currency had continued to draw strength from ECB s Sept 6 th monetary policy and Germany s constitutional court ruling. For this week we can see some profit booking taking place after rallying continuously. ECB has already warned that they have only bought time for the European government to start their deficit cutting and growth boosting steps needed to stabilized. Finance ministers meeting in Cyprus pressed for a fresh set of reforms to rebuild confidence in Spain s economic management and said that rescue program for Greece won t be decided until late October. Trade balance of Euro-zone may increase in the last month but might be slightly lower than the prior month. Increasing export from German and France with stable lower import may continue to support the trade surplus figure. This may also add some points on current account balance for July month. PMI numbers from German and Euro-zone are likely to show a slight improvement. However, for the next week overall we expect Euro inch down against the greenback. Currency Research Desk Mail Us at currencyresearch@karvy.com 4

5 Economic data for week ahead Date Time Region Event Period Survey Prior 09/17/ :30 EC ECB Euro-Zone Current Account SA Jul B 09/17/ :30 EC Euro-Zone Trade Balance sa Jul 9.8B 10.5B 09/18/ :30 US Total Net TIC Flows Jul -- $16.7B 09/19/ :00 US Housing Starts Aug 765K 746K 09/20/ :00 GE PMI Manufacturing Sep A /20/ :30 EC Euro-Zone Consumer Confidence Sep A /20/ :30 US Leading Indicators Aug -0.10% 0.40% Technical snapshot Euro continued its bullish trend for fifty consecutive weeks. Last week Euro surged by two and half Percent and closed above the psychological level of On the final day of the week the pair breached 38.2% Fibonacci retracement level for the down rally range ( ) but it failed to make close above the same. On Daily chart momentum indicator RSI-14 is already trading above the overbought zone. For this week, we expect Euro could continue bullish trend and test the trendline resistance of as the moment is till tending towards upside. For the this week we recommend for buying at dips, Currently supports are witnessing at and resistance are evident at then Currency Research Desk Mail Us at currencyresearch@karvy.com 5

6 GBP/USD Currency Contract S2 S1 Close R1 R2 Recommendation GBPINR MCX-SX Sep Sell Below TP SL GBPINR NSE Sep Sell Below TP then SL GBPUSD SPOT Buy at TP then SL Fundamental Review The GBP/USD ended the week at surprising most investors as currency pair jumped higher despite the poor UK fundamentals. This strength in the pair was due to dollar weakness as Federal Reserve embarked into generous open ended bond buying program under QE3. On the economic data front, UK RIC house price balance rose to -19 from -23, decline was slower than expected over some optimism recent government will help boost sales which also supported the cable. MCX-SX NSE Economic data for week ahead Date Time Region Event Survey Prior 09/19/ :30 JN Leading Index CI Jul F /19/2012 JN BOJ Target Rate 19-Sep 0.10% 0.10% Outlook This week most of the focus will likely remain upon the aftermath of the Fed s policy easing especially in terms of whether a broadly based rally in risk assets will continue given other global developments which might shape in next week. Following the introduction of QE3 via open ended purchase of mortgage backed securities combined with a continuation of operation twist and pledging to keep interest rate at an ultra low level until mid-2015 at the earliest, there are Fed speakers on the calendar over the week ahead which might not be as significant an event as it was before QE3 was introduced. Other key economic data from the US are Net long term TIC flow, Existing home sales. The US s Markit Manufacturing PMI is expected to remain above 50 mark and continue to indicate expansion though is a slower pace. From the UK we have CPI data and we expect it to increase due to energy and food prices. Overall we expect the GBP/USD pair to come under pressure. Currency Research Desk Mail Us at currencyresearch@karvy.com 6

7 Technical snapshot Pound experienced another extreme surge last week, by gaining around 1.30% W/W. Pound breached the Intermediate trendline resistance of and made a close above it. On higher side it has tested the upper band resistance of Bollinger bands when applied on the weekly chart and even momentum indicator RSI-14 is currently trading at 0.62 on weekly charts suggesting near to the overbought zone. On the chart next resistance is witnessing at of April 2011 highs and then of 76.8% Fibonacci retracement level for range ( ). For above analysis we expect, Pound may trade within range with upward bias and may buy at lower levels targeting Mean while support are seen at then Currency Research Desk Mail Us at currencyresearch@karvy.com 7

8 USD/JPY Currency Contract S2 S1 Close R1 R2 Recommendation JPYINR MCX-SX Sep JPYINR NSE Sep Sell below TP then SL Sell below TP then SL USD/JPY SPOT Buy at TP then SL Fundamental Review The USD/JPY pair had fallen as low as last week as the USD weakened as markets hopes for stimulus from the Feds. However post QE3 announcement on Thursday we saw US dollar collapsing against major currencies except yen. The pair inched upward to MCXSX NSE Economic data for week ahead Date Time Region Event Period Survey Prior Impact 09/12/ :20 JN Machine Orders Jul 2.00% 5.60% negative 09/14/ :00 JN Capacity (MoM) Jul F % Negative Utilization (MoM) 09/14/ :00 JN Industrial Jul F % Negative Production (MoM) Outlook Yen fell on Friday broadly on speculation that Japanese authorities could intervene to cap its recent gains against the dollar. Coming week we have Bank of Japan interest rate decision. BOJ is under enormous pressure from the ministry of finance to debase a strong yen which is hurting their exports. Key data releasing next week from Japan is the Leading Economic Index and Coincidence Index and we expect the figure to remain above the 90 level. Japan s Merchandise trade balance and Machine Tools figure will also be monitored closely. Bank of Japan will also be releasing its monthly economic survey towards the end of the week which will present a study of economic movement in Japan. We expect the pair to remain in a range with mild positiveness as either the US dollar or Japanese yen are in no mood to exhibit strengths. Currency Research Desk Mail Us at currencyresearch@karvy.com 8

9 Technical Snapshot After last few weeks of consolidation last week Yen gave break down of crucial supports of and tested a low of On final day of the week, Pair gained more than 1% and erased all its previous losses of the week finally closed at gaining 0.18% W/W. On technical front, although Yen breached the crucial trendline support of in the initial days of the week but it managed to close above it forming a Hammer Pattern. Momentum indicator RSI-14 is still hovering in the same range of This week we expect, Yen to move slightly higher till the resistance of breach and sustain above it may test further higher levels of in coming days. For this week we recommend to buy around Major economic events for the week Date Time Region Event Period Survey Prior SEP CH Actual FDI (YoY) Aug -5.80% -8.70% 09/17/ :00 IN India REPO Cutoff Yld 17-Sep 8.00% 8.00% 09/17/ :00 IN Cash Reserve Ratio 17-Sep 4.75% 4.75% 09/17/ :00 IN Reverse Repo Rate 17-Sep 7.00% 7.00% 09/17/ :30 EC ECB Euro-Zone Current Account SA Jul B 09/17/ :30 EC Euro-Zone Trade Balance sa Jul 9.8B 10.5B 09/17/ :00 US Empire Manufacturing Sep /18/ :00 CH China August Property Price 09/18/ :00 UK CPI (MoM) Aug 0.50% 0.10% 09/18/ :30 GE Zew Survey (Current Situation) Sep /18/ :30 GE ZEW Survey (Econ. Sentiment) Sep /18/ :30 EC ZEW Survey (Econ. Sentiment) Sep SEP CH Actual FDI (YoY) Aug -5.80% -8.70% 09/18/ :00 US Current Account Balance 2Q -$125.0B - 09/18/ :30 US Total Net TIC Flows Jul -- $137.3B $16.7B 09/18/ :30 US Net Long-term TIC Flows Jul -- $9.3B 09/18/ :30 US NAHB Housing Market Index Sep /18/2012 IN CPI (YoY) Aug % 09/19/ :30 JN Leading Index CI Jul F Currency Research Desk Mail Us at currencyresearch@karvy.com 9

10 09/19/ :30 US MBA Mortgage Applications 14-Sep % 09/19/ :00 US Housing Starts Aug 765K 746K 09/19/ :00 US Building Permits Aug 795K 812K 09/19/ :30 US Existing Home Sales Aug 4.56M 4.47M 09/19/2012 JN BOJ Target Rate 19-Sep 0.10% 0.10% 09/20/ :20 JN Merchnds Trade Balance Total Aug B - 09/20/ :20 JN Merchnds Trade Exports YoY Aug B /20/ :20 JN Merchnds Trade Imports YoY Aug /20/ :00 CH HSBC Flash Manufacturing PMI Sep /20/ :30 GE Producer Prices (MoM) Aug 0.40% 0.00% 09/20/ :30 JN Machine Tool Orders (YoY) Aug F % 09/20/ :00 GE PMI Manufacturing Sep A /20/ :00 GE PMI Services Sep A /20/ :30 EC PMI Composite Sep A /20/ :30 EC PMI Manufacturing Sep A /20/ :30 EC PMI Services Sep A /20/ :00 US Initial Jobless Claims 15-Sep 375K 382K 09/20/ :00 US Continuing Claims 8-Sep 3300K 3283K Prepared by:- Aurobinda Prasad (aurobind@karvy.com) Research Head Rituparna Paul (rituparna.paul@karvy.com)-fundamental Analyst Harish J (j.harish@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. Currency Research Desk Mail Us at currencyresearch@karvy.com 10