Sep 17, 2016 - jobless claims EU data: PMI(mfrg and services- flash surveys), consumer confidence. UK data: Public secto
FX WEEKLY REPORT
17/09/16
INR DECLINES AS FED MEET NEARS. Highlights: -GLOBAL and INDIAN MARKET DEVELOPMENTS -DATA HIGHLIGHTS AND FX MARKET DEVELOPMENTS -TECHNICALS -STRATEGY FOR HEDGING AND SUGGESTED PORTFOLIO -DATA AND EVENTS FOR NEXT WEEK. Major economic events: -INR declines on reports that Commerce Ministry is pushing for a weak Rupee. -FED and BOJ meet are crucial events for this week. Important developments during last week: Sentiments change swiftly in markets and squeeze positions. It was evident in USDINR movement last week as INR whipsawed as a news channel reported that Commerce Ministry would like Cabinet to discuss Rupee devaluation, considering its strength as measued by REER. Rupee is considered overvalued by 10% as per REER measure. However, senior Finance Ministry official stepped in and dismissed reports and added that there is no change in Govt policy over Rupee value and it is decided only by market demand- supply. INR recovered from intra week low of 67.07. Though devaluation reports are not serious for worry, yet the apprehension that Rupee is too strong for the liking serves as an immediate
cap for Rupee gains. Also, with Fed decision expected to move markets either way, USDINR move is symmetrically poised as we approach mid week. Indian CPI softened to 5.05% in Aug, down from July’s 6.07%. Food inflation declined steeply to 5.8% in Aug from 8% in July. Fuel inflation also fell to 2.5% from 2.75%. IIP contracted 2.4% in July as against a growth of 2% in June. Mfrg declined 3.4%. Consumer durables grew by 5.9%, electricity output declined steeply to 1.6% and mining climbed 0.8% as against 5.3% in June. IIP data is very contradictory to GDP data which has projected Q1 Industrial growth at 9.1% based on GVA. Indian indirect tax collections grew by 27% in Apr-Aug 2016. Direct tax collections jumped 15% in the same period as compared to the same period last year. According to Govt sources, direct tax collections has met 27.5% of budget estimate till now and indirect tax collection has met 43.2% of budget estimate. FII’S have invested USD 1.3 bn in Indian Equities in Aug. FII’S are net buyers of USD 6.63 bn worth of Indian Equities in this calendar Year. FII’S have sold USD 392 mn Indian debt securities in Aug. FII’S have sold nett USD 496 mn Indian debt securities in this calendar Year. USDINR seems to have made an important bottom at 66.32. Expect USDINR to trade in the 66.30-67.25 range for some more period, before new developments guide INR to a new trajectory. Global developments: Contradictory statements from Fed members have left markets confused resulting in high volatility whipsaw in asset and FX markets ahead of Fed meet. Mixed economic data from US is also consistent with the patience shown by Fed. Industrial production and retail sales dampened economic growth outlook. While CPI climbed marginally higher, it is still not enough to force Fed to hike rates. While Fed futures is pricing 54% probability of rate hike, there is a growing expectation that Fed would not hasten to act before NOV US election. Along with the Fed, BOJ is also set to announce its monetary policy. The dual combination of Fed and BOJ decisions are set to create high impact on markets. However, if both maintain status quo, Equity markets may get stabilized and Gold may rally. Yen will gain on BOJ status quo and USD’S consolidative move against Euro may get extended.
BoE maintained monetary policies unchanged as widely expected and Sterling declined as the central bank hinted at the possibility of further rate cut later this year. Bank rate was held at 0.25% and asset purchase target at GBP 435b. BOE noted that "a number of indicators of near-term economic activity have been somewhat stronger than expected." Also, "the Committee now expect less of a slowing in UK GDP growth in the second half of 2016." But the post Brexit outlook "had not changed" and "a majority of members expected to support a further cut in Bank Rate to its effective lower bound at one of the MPC's forthcoming meetings during the course of the year." International Energy Agency (IEA) has projected that global oil demand growth is "slowing at a faster pace than initially predicted". It now forecasts demand to grow 1.3M bpd this year, down -0.1M bpd estimated last month, before moderating to 1.2M bpd in 2017. On the supply side, IEA noted that world oil supplies dropped -0.3M bpd in August, as non-OPEC output fell. Supply is expected to outpace demand in the first half of next year.
Important developments for next week: -Fed meet and BOJ decision Important levels to watch for are: 1) EUR/USD: 1.11/1.09 on the downside and 1.1365/1.1425 on the upside. 2) USD/INR Supports: 66.67/66.32 on the downside and 67.05/67.25 on the upside. Market developments: -Indian Nifty closed at 8779. -Gold closed at 1310 and WTI Crude closed the week at USD 43.25. -Indian 10 Year G-SEC closed the week at 6.87%. US 10 Year Yield closed at 1.70%. Data Highlights of last week: -US weekly jobless claims dipped to 260k and PPI was flat m/m. -US Core retail sales declined -0.1% m/m, industrial production declined -0.4% m/m and NY mfrg index dipped to -2.
-US CPI climbed 0.2% m/m nd Core CPI climbed 0.3% m/m and TIC purchases climbed to USD 103.9 bn. -EU CPI climbed 0.2% y/y and Core CPI climbed 0.8% y/y. -EU Zew sentiment declined to 5.4., German Zew sentiment declined to 0.5. and EU employment change was reported at 0.4% q/q. -EU industrial production declined -1.1% m/m. -UK unemployment rate was reported unchanged at 4.9% and claimant count change was higher at 2.4k. -UK CPI climbed 0.6% y/y,RPI climbed 1.8% y/y, PPI( output) climbed 0.1% m/m. -Chinese industrial production rose 6.3% yoy in August, up from 6.0% yoy and beat expectation of 6.2% yoy. Retail sales rose 10.6% yoy, up from 10.2% and beat expectation of 10.2%. Fixed assets investments rose 8.1% yoy, unchanged from prior month's and beat expectation of 7.9% yoy.
Technicals: USD/INR: Spot closed near major moving averages. 20 day moving average(spot) is at 66.93. 50 day moving average(spot) is at 67.04. 200 day moving average is at 67.05. Daily MACD is in buy zone, implying important bottom at 66.32. Important support zone is at 66.32 and later at 66.10. Important resistance is at 67.05 and later at 67.25. EURO/USD: Trend is sideways. The pair is below 50 and 100 day major moving averages, but above 200 day average. Major resistance is at 1.1365 and later at 1.1425. Major support is at 1.1122. Daily MACD is in sell zone, implying an important top at 1.1325. Weekly MACD is in buy zone, implying important bottom at 1.09. GBP/USD: Trend is bearish in daily chart. Daily MACD is in sell zone, implying important top at 1.3445 and weekly MACD is in sell zone, implying important top at 1.5015. The pair is trading below below 200 day moving average. Important support is at 1.2775/1.25 Important resistance is at 1.35. USD/YEN: The pair is trading below 100 and 200 day major moving averages. Daily MACD is in sell zone, implying important top at 104.32. Major support is at 99.45. Important resistances are at 104.30/105.50.
Strategy for USD/INR: Buyer’s credit be hedged from comfort angle. Imports be hedged. Suggested Portfolio: 1) Buy USDINR if 67.05 is broken on the upside. Hedging suggestion: Considering the volatility in the markets, suggest hedging of Currency exposures be done from costing/affordability angle.
Currency Map: Currency Pairs
WEEKLY CLOSE
PRIOR CLOSE
EURO/USD GBP/USD USD/JPY USD/INR
1.1152 1.30 101.92 66.97
1.1231 1.3289 102.51 66.67
WEEK % change -0.71 -2.17 -0.57 0.45
Data and Events for upcoming week: US Data: FOMC meet and economic projections, building permits, housing starts, House price index, existing home sales and Weekly jobless claims EU data: PMI(mfrg and services- flash surveys), consumer confidence UK data: Public sector net borrowing Japan: BOJ meet and All industry activity index
USD/INR CHART:
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