Jun 17, 2017 - EU data: ECB economic bulletin, consumer confidence, PMI surveys UK: Public sector net borrowing Japan: A
FX WEEKLY REPORT
17/06/17
FED FORGES AHEAD WITH RATE HIKE, INDIAN CPI DECLINES 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: -Fed stays course on rate hike. -Indian CPI declines, IIP climbs. -BOE and BOJ maintain status quo. Important developments during last week: Rupee closed the week at 64.43 as against prior week close of 64.24. Rupee swayed both ways before ending mildly lower w/w basis. On Thursday, Rupee declined due to impact of Fed decision, stop losses effected by short position holders and RBI buying at lower levels. However, as Rupee spiked lower to 64.73 on Friday, exporters led by heavyweights sold USD aggressively. With Euro and USD index stabilizing after Fed decision, Rupee lacks triggers for a heavy decline. Technically, USDINR has strong support at 64.15. If 64.15 holds, Rupee could weaken again to 64.75 levels. However, the bigger trend is bearish for USD with a possible contracting consoildation between 64.15 and 64.75 levels. Indian economic data was supportive for Aug rate cut. CPI declined, endorsing last week’s CEA comments that RBI is wrong in projecting higher inflation and faulted RBI for status quo.
Indian IIP rose 3.1% in April as against 2.7% in March. Mfrg sector grew by 2.6%, mining climbed 4.2%, power generation climbed 5.4%. Meanwhile, retail inflation eased to 2.18 per cent in May from 2.99 per cent in April. Consumer food price inflation contracted by 1.05 per cent last month. FII’S have bought USD 623 mn Indian Equities in June and have invested USD 8.45 bn till date in this calendar year. FII’S invested USD 2.92 bn in Indian debt market in June and USD 13.5 bn in this calendar Year till date. Global developments: USD corrected marginally lower against Euro, Yen declined and Commodity Currencies ended higher even as Oil prices declined further. It was a week dominated by major central bank meetings. Fed brushed aside recent worries over US growth slowdown and softer inflation data. Decline in retail sales and fall in housing data along with softer CPI made investors feel that Fed would sound dovish even if there is a rate hike. However, Fed considers recent weakness in growth and inflation as transitory. Market reaction was muted. Federal Reserve raised interest rates for the third time in six months and maintained its outlook for one more hike in 2017. Fed officials forged ahead with raising borrowing costs and voiced plans to keep tightening policy even in the face of signs of slowing inflation. Fed Chair Janet Yellen emphasized that some of the factors weighing on inflation will dissipate in coming months and that officials see further hikes as appropriate. U.S. retail sales recorded their biggest drop in more than a year in May amid declining purchases of motor vehicles and discretionary spending, which could temper expectations for a sharp acceleration in economic growth in the second quarter. CPI also declined, signalling lesser inflationary pressures. BoE kept bank rate unchanged at 0.25% and asset purchase target at GBP 435b as widely expected. Two members voted for rate hike, implying that members are getting impatient over surge in inflation. BOJ maintained status quo on rates and QE. However, BOJ sounded optimistic on growth and employment.
Important developments for next week: -No major events.
Important levels to watch for are: 1) EUR/USD: 1.1025/1.0830 on the downside and 1.13 on the upside. 2) USD/INR Supports: 64.15/63.90 on the downside and 64.75/65 on the upside. Market developments: -Indian Nifty closed at 9588. -Gold closed at 1255 and WTI Crude closed the week at USD 44.70. -Indian 10 Year G-SEC closed the week at 6.489%. US 10 Year Yield closed at 2.15%. Data Highlights of last week: -US CPI declined -0.1% m/m and retail sales declined -0.3% m/m. -US Weekly jobless claims declined 8k to 237k, Industrial production was flat m/m and TIC purchases -US NY mfrg index rose to 19.8 and Phily Fed mfrg index expanded to 27.6. US building permits declined to 1.17 mn and housing starts declined to 1.09 mn. -EU CPI(final) was at 1.4% y/y. -EU industrial production climbed 0.5% m/m. -UK claimant count change dipped to 7.3k and unemployment rate was flat at 4.6%. -UK retail sales declined -1.2% m/m.
Technicals: USD/INR: Spot closed below 20 and 50 day major moving averages. 20 day moving is at 64.44. 50 day moving average is at 64.49. 200 day moving average is at 66.45. Daily MACD is in buy zone, implying bottom at 64.16 . Important support zone is at 64.15 and later at 63.93. Important resistance is at 65. EURO/USD: Trend is UP. The pair is above major moving averages. Next Major resistance is at 1.1297 .Major supports are at 1.11 and later at 1.1025. Daily MACD is in sell zone, implying an important top at 1.1297. Weekly MACD is in buy zone, implying important bottom at 1.0340.
GBP/USD: Trend is sideways in daily chart. Daily MACD is in sell zone, implying important top at 1.3045 and weekly MACD is in buy zone, implying important bottom at 1.1940. The pair is trading above 100 and 200 major major moving averages, but below 50 day moving average .Important resistance is at 1.3045 and later at 1.32. Important support is at 1.2630. USD/YEN: The pair is trading below major major moving averages. Daily MACD is in buy zone, implying important bottom at 108.80. Major support is at 108.80 Important resistance is at 112 and later at 114.40.
Strategy for USD/INR: Buyer’s credit be hedged at 64.25 levels. Suggested Portfolio: 1) Sell USD at 64.70. 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
1.1197 1.2781 110.91 64.43
1.1195 1.2747 110.34 64.24
WEEK % change 0 0.26 0.51 0.29
Data and Events for upcoming week: US Data: Existing and new home sales, house price index, weekly jobless claims. EU data: ECB economic bulletin, consumer confidence, PMI surveys UK: Public sector net borrowing Japan: All industry activity index.
USD/INRCHART:
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