Currencies Weekly Report

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1 Currencies Weekly Report Powered by Karvy Forex & Currencies Pvt. Ltd. Monday 17 Jul 2017 Global Economic Review & Outlook Global equities this week has hit a all-time high, with the confidence in the investors community having boosted up. Past week was mostly driven by Fed Chair testimony where she kept the investor s clueless. Key happenings in the past week are:- Janet Yellen in her semi annual testimony in front of senate said an additional gradual rate hikes will be needed over the next few years. Consumer Price in India increased by 1.54 percent year-on-years in June BoE MPC member Broadbent where he kept mum on interest rates Indian Equities has hit a all-time high on Monday 17th July Janet Yellen in her semi annual testimony in front of senate said an additional gradual rate INDICES Last Price Previous Week % CHANGE hikes will be needed over the next few years but rates won t have to rise much further to get NASDAQ to neutral. More importantly she said everything hinges on inflation, which is the key uncertainty and right now it is running below their goal, having declined recently. These DOW JONES dovish remarks from the top central banker made the US dollar to trade lower against the NIKKEI major currencies. But the very next day in her testimony she reminded the market HANGSENG participants about the improvements in the U.S. economy and she also said that Fed still plan to hike the interest rates. CAC Whereas the Consumer prices in India increased by 1.54 percent year-on-year in June 2017, DAX slowing sharply from a 2.18 percent rise in May and below market expectations. FTSE BoE MPC member Broadbent where he kept mum on interest rates during a speech he delivered before the Scottish Council for Development and Industry earlier. Broadbent was Currencies Last Price Previous Week % CHANGE among the majority of MPC members to vote for unchanged policy at the June meeting, DXY which had been a surprise for markets as three of his colleagues voted for a 25 bps hike in EURUSD the repo rate Indian Equities has hit a all-time high on Monday 17th July where NIFTY made a all time high GBPUSD of 9927 and BSE s Sensex made a all time high of USDJPY RBI Reference Rate USDINR Forward Rates (Month End) MONDAY TUESDAY WEDNESDAY THURSDAY FRIDAY 1 Month 3 Month 6 Month 9 Month 12 Month USDINR Monday EURINR Tuesday GBPINR Wednesday JPYINR Thursday Friday

2 Dollar Index Outlook US dollar closed for the week at compared to previous week s close of Trading range for the week was in between on the higher side and on the lower side. The dollar has started the week on a front foot against major on back of stronger than expected US Nonfarm payroll data which has increased 222k in June after rising 152k in May revised from 138k for a net 47k upward revision. The unemployment rate edged up to 4.4% versus 4.3% previously. This has given a boost to confidence in the investors community that Fed Chair Yellen in would sound hawkish in the semi-annual testimony. But the focus has shifted toward Trump Jr.'s release of an string on his controversial meeting with a Russian attorney in US elections This news kept the investors to worry about delay in Trump s pro-growth policies further and a sell off came in US dollar globally. Adding to that U.S. JOLTS report showed job openings slumped 301k in May to 5,666k after rising 182k to 5,967k in April revised down from 6,044k. In the later part of the week the focus shifted towards Yellen testimony where she said an additional gradual rate hikes will be needed over the next few years but rates won t have to rise much further to get to neutral. More importantly she said everything hinges on inflation, which is the key uncertainty and right now it is running below their goal, having declined recently. These dovish remarks from the top central banker made the US dollar to trade lower against the major currencies. But the very next day in her testimony she reminded the market participants about the improvements in the U.S. economy and she also said that Fed still plan to hike the interest rates. Later the same week the dollar was sold off and was dragged to the lowest levels since September 2016 due to softer than expected US data where the Core CPI readings are expected to uptick to 0.2% from 0.1% the month prior with year over year figures remaining at 1.7% which is still below the Fed s 2% target. And further despite the labour market remaining near highest levels of tightness, wage growth and consumer spending were even more muted, as US consumers continue to service debt rather than increase spending. On second day of testimony, Yellen said that inflation has fallen, it is premature to say the underlying inflation trend is below 2% because the risk to inflation is two sided". She also said, nothing suggests that the expansion will die anytime soon". Looking ahead the we have NY state Manufacturing Index number to be report on Monday 17th July. Export and Import Price Index numbers to scheduled to be published on Tuesday 18th July. On Wednesday, we have Building Permits number along with Housing start due to be published. On Thursday 20th July we have Weekly jobless claims report along with Philly Fed employment figures scheduled. Now market participant are most likely to emphasise on the data that anything as this could further help the markets to understand fed s further plans about the rate hike. The instrument traded in a broader range of on the higher side and on the lower side during the week, the instrument had a bearish candle and continued its intermediate downtrend, now 95 levels need to watch, if sustain and close below expects lower levels near term supply at levels so until instrument trade above 96. Trend likely to continue. Weekly Bias Weekly Trading Strategy (SPOT) Weekly Range (SPOT) Sideways SELL DXY SL TGT S3 S2 S1 Pivot R1 R2 R

3 Rupee Outlook Indian Rupee against US dollar closed for the week at compared to previous week s close of Trading range for the week was in between The recent Consumer prices were increased by 1.54 percent year-on-year in June o2017, slowing sharply from a 2.18 percent rise in May and below market expectations of 1.7 percent. The inflation rate fell to a fresh record low for the third month as food prices declined faster amid a favourable monsoon. Wholesale prices in India rose 0.9 percent year-onyear in June 2017, compared to a 2.17 percent rise in May and below market estimates of a 1.6 percent rise. It was the lowest wholesale inflation since July 2016, as cost of manufactured products and fuel went up at a slower pace and food prices fell further. On a monthly basis, wholesale prices decreased by 0.1 percent, after falling 0.4 percent in a month earlier. Looking ahead there are no major reports this week to be published from Indian context. Expect upside in USD-INR to be capped at and downside at This is the daily chart of USDINR, the pair has traded in the broader range of on the downside and on the higher side, the pair has been trading side wise for couple of weeks, and trading below the 50DMA now that likely to act as a resistance and supply likely to come in at higher levels with MACD indicator giving a cross over on daily chart expects likely to drift lower if the said range breaks. Weekly Bias Weekly Trading Strategy Weekly Range (SPOT) Sideways (SPOT) SELL USDINR FUT TGT SL R2 R July Exports partially hedged at on Spot Imports hedged partially at on Spot. Pending imports booked around Spot

4 Euro Outlook EURO closed for the week at compared to previous week s close of Trading range for the week was in between on the higher side and on the lower side. Initially EURO against US dollar was sold off due to stronger US dollar on back of better than expected US data. Later, the euro against USD rallied to 14-month highs to hit The key reason for euro s appreciation against US dollar was because of weaker US dollar which was sold off on back of the release of Trump Jr.'s release of an string on his controversial meeting with a Russian attorney in US elections This news kept the investors to worry about delay in Trump s pro-growth policies further. Despite U.S. dollar s weakening due to dovish comments from Fed chair Yellen in her testimony, gains in EURO were further limited following the dovish remarks from ECB Rimsevics discouraged the investor s confidence. The ECB Governing Council member said that QE will continue for a few years as inflation forecasts are still far the central bank s goals. Now on the QE tapering plans market participant would further wait for comments from Mario Draghi who is scheduled to speak in the next month where he is expected to talk about reducing ECB's bond-buying program. Coming to economic data, Euro zone May industrial production rose 1.3% m/m, more than consensus expectations, but not really a surprise after strong national data from France, Italy and Germany. Production clearly bounced back after the lull over the Easter holiday period and the annual rate jumped to 4.0% y/y from 1.2% y/y in April. German CPI report was confirmed at 1.5% y/y whereas national CPI at 1.6% y/y. No surprises there, and although the slight uptick in the headline rate over the month was against the general trend in the Euro zone. Later EURO against US dollar has hit a more that an year s high as the recent CPI data has dented the investors confidence. Now looking ahead we have EZ CPI to be reported on Monday 17th July and Zew economic sentiment on Tuesday 18th July. On Thursday 20th July we have Deposit Facility Rate to be reported along the key focus on ECB s interest rate decision followed by press conference. This is the daily chart of EURUSD the pair trade in a broader range on the lower side and on the higher side during the last the week, the pair after giving a breakout of flag pattern trended on the higher side and now consolidating its gains near 1.15 levels and prior to that the pair had broken out of inverted Head and shoulder, with MACD indicator remaining on the buy side expects the pair to trade above 1.15 with support at Weekly Bias Weekly Trading Strategy Weekly Range (SPOT) Bullish BUY EURUSD TGT SL BUY EURINRFUT TGT SL R2 R3 (SPOT) July Exports partially hedged at on Spot July Imports to be partially booked at Spot

5 British Pound Outlook Pound closed for the week at compared to previous week s close of Trading range for the week was in between on the higher side and on the lower side. GBP against USD has started the week on weaker note on back of because of weaker than expected UK data which raised doubt on the hawkish comments from the Bank of England as it is difficult to imagine how the UK central bank could seriously consider tightening soon with data consistently falling short of expectations. UK production, trade and house price data disappointed. Headline industrial output unexpectedly shrank, by 0.1% m/m and by 0.2% y/y versus the respective median forecasts for 0.3% m/m and 0.2% y/y growth. run of UK data misses have offset emergent hawkish BoE signals, with production, trade and house price data for May and June all underwhelming, which followed unexpected weakness in all three of the UK June PMI surveys. Due to this we have seen some weakness in pound against US dollar as well as EURO. Later the focus has shifted towards BoE MPC member Broadbent where he kept mum on interest rates during a speech he delivered before the Scottish Council for Development and Industry earlier. Broadbent was among the majority of MPC members to vote for unchanged policy at the June meeting, which had been a surprise for markets as three of his colleagues voted for a 25 bp hike in the repo rate. He spoke mostly about his view on Brexit risks, concluding that "put simply, a significant curtailment of trade with Europe would force the UK to shift away from producing the things it's been relatively good at, and therefore tends to export to the EU, and towards the things that it currently imports and is relatively less good at. This lack of interest rate comments from BoE's Broadbent made Pound to give up the earlier gains. Later the same week Pound has hit highest levels since September 2016 at due to on the hawkishness of U.K. policymakers. Investors now won't emphasis on monetary-policy committee member Broadbent s cautious comments and focused purely on McCafferty s plan to vote for a rate rise in August. Yet this is not surprising considering he was one of the 3 members of the MPC who voted in favour of immediate tightening at their last meeting. So while Brexit talks continue to move slowly, as long as data validates the BoE s optimism and policymakers continue to talk up the need to remove policy accommodation. On Tuesday 18th July we have UK s CPI as well as PPI data to be on tap but the key driver would BoE GUV Carney s speech. Thursday, July 20 we have the major Retail Sales data. This is the daily chart of GBPUSD pair the pair traded in the broader range of on the downside and on the higher side,on last trading day the pair broke out above the resistance of and saw the pair made a bullish candle stick pattern, the pair was trading in a broader range of 1.26 and for past many weeks now resistance becomes support and with MACD remaining on the positive side expects the pair to trade higher. Weekly Bias Weekly Trading Strategy Weekly Range (SPOT) Bullish BUY GBPUSD TGT SL BUY GBPINR FUT TGT SL R2 R4 (SPOT) July Exports partially hedged at on Spot July Imports partially booked at & All pending imports to be booked targeting 82.50

6 Japanese Yen Outlook USD-JPY closed for the week at compared to previous week s close of Trading range for the week was in between on the higher side and on the lower side. Most of the movement in USD-JPY pair was because of US dollar which has taken the roller coaster in the past week. But the key attraction of the week was Yellen testimony where she has failed to impress the market participants and the same has led to profit booking in USD-JPY pair at higher levels of Even the recent inflation was weaker than expected where the Core CPI readings are expected to uptick to 0.2% from 0.1% the month prior with year over year figures remaining at 1.7% which is still below the Fed s 2% target. And further despite the labour market remaining near highest levels of tightness, wage growth and consumer spending were even more muted, as US consumers continue to service debt rather than increase spending. On second day of testimony, Yellen said that inflation has fallen, it is premature to say the underlying inflation trend is below 2% because the risk to inflation is two sided". She also said, nothing suggests that the expansion will die anytime soon". With keeping these comments in mind and with inflation data on Friday being weaker now a September rate hike is completely off the table and investors will remain skeptical about December. Japan's core machinery orders were reported where it has unexpectedly tumbled in May on persistent weakness in the services sector, and the government downgraded the outlook for orders for the first time in eight months, raising doubts about the strength of the economic recovery. Looking forward on Wednesday, July 19 we have BoJ policy meeting where the central bank is expected to keep the rates unchanged this time. Post that we have the policy statement to publish. This is the daily chart of USDJPY pair, the pair traded in a broader range of on the higher side and on the lower side, the pair reversed from the higher levels of the supply zone and the pair is trading near the previous breakout levels of if sustain and close below expects lower levels with MACD remaining on the negative side expects the pair to find supply at higher levels. Weekly Bias Weekly Trading Strategy Weekly Range (SPOT) Bullish SELL USDJPY TGT SL BUY JPYINR FUT TGT SL R2 R4 (SPOT) July Exports to be partially hedged targeting on Spot July Imports partially booked at & on Spot. Next tranche to be booked targeting 56.30

7 Economic Data for the Week Date Time Currency Data Forecast Previous :00pm GBP CPI y/y 2.90% 2.90% GBP PPI Input m/m -0.80% -1.30% GBP RPI y/y 3.60% 3.70% 2:30pm EUR German ZEW Economic Sentiment :00pm USD Import Prices m/m -0.20% -0.30% 7:00pm GBP BOE Gov Carney Speaks :00pm USD Building Permits 1.20M 1.17M USD Housing Starts 1.16M 1.09M 8:00pm USD Crude Oil Inventories -7.6M Tentative JPY Monetary Policy Statement Tentative JPY BOJ Outlook Report Tentative JPY BOJ Policy Rate -0.10% -0.10% 12:00pm JPY BOJ Press Conference 2:00pm GBP Retail Sales m/m 0.30% -1.20% 5:15pm EUR Minimum Bid Rate 0.00% 0.00% 6:00pm EUR USD ECB Press Conference Unemployment Claims 245K 247K USD Philly Fed Manufacturing Index :00pm GBP Public Sector Net Borrowing 4.3B 6.0B Report prepared by: Siddhesh Ghare Deepak Agarwal Shashank Damaraju Head Office Karvy Millennium,Plot No 31, Financial District, Gachibowli, Hyderabad T: / 6635 Corporate Office 131, Andheri Industrial Estate, Off Veera Desai Road, Andheri (W), Mumbai T: , Mob No Disclaimer: The information and analysis contained in this document come from sources believed to be reliable and our own internal research; however, no representation or warranty, express or implied, is made as to the fairness, accuracy, completeness or correctness of this information. Nothing contained in this publication shall constitute an offer to sell/purchase or an invitation/ solicitation to do so for any currency, security, commodity or equity. Karvy Forex & Currencies Pvt. Ltd. accepts no liability whatsoever for any loss, howsoever arising, from any use of this document, its contents or otherwise arising in connection therewith.no part of this document can be circulated or reproduced in any form without prior approval of Karvy Forex & Currencies Pvt. Ltd.