FX WEEKLY REPORT

FX WEEKLY REPORT

30/07/2016

RUPEE FLAT, FED AND BOJ MAINTAIN STATUS QUO 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 flat, GST to pass. -FOMC in no hurry to raise rates. USD loses last week gains. Important developments during last week: USDINR closed at 67.01 as against previous week close of 67.08. The pair was bound in the 66.95-67.42 range. INR started the week lower and reversed to gains as Fed’s stance and communication implied that USD rate hike may not materialize soon. Fall in Oil prices, uptrending Equity markets and likely passage of GST bill are contributors to Rupee gain. Attractiveness of Indian G-SEC yields in the face of low/negative Global yields also contributed to Rupee strength. With GST bill inching towards passage next week, Rupee and Indian Equities are likely to maintain bullish sentiment. INR would have gained even more but for RBI support for USD. RBI was spotted buying USD at lower levels.

FII’S have invested USD 1.87 bn in Indian Equities in July. FII’S are net buyers of USD 4.9 bn worth of Indian Equities in this calendar Year. FII’S have bought USD 1.01 bn debt in July. FII’S have sold nett USD 655 mn Indian debt securities in this calendar Year. USDINR seems to have made an important top at 68.20. Expect USDINR to trade in the 66.50-67.75 range for some more period, before new developments guide INR to a new trajectory. Global developments: Yen and Gold surged, while Crude continued to decline last week. USD fell against Euro as Q2 GDP data disappointed expectations. Q1 GDP showed 1.2% growth only versus expectation of 2.6%. GDP price index rose 2.2%. Employment cost index rose 0.3% in Q2. The sub par GDP growth could be attributed to draw down in inventories and lack of pace in business investment.The data dampened expectation of rate hike later this year. USD was also lower due to Fed’s communication which seemed to suggest that US Central bank is not in a hurry to raise rates. However,Federal Open Market Committee members upgraded their assessment of the economy in their monetary policy statement and declared that near-term risks to the outlook have diminished and labor utilization has shown “some increase,” though inflation remains too low. Yen surged after BOJ disappointed rate cut expectations. BOJ voted 7-2 to raise ETF purchases to an annual pace of about 6 trillion yen, from 3.3 trillion previously. All other measures stayed unchanged: BOJ will purchase Japanese government bonds (JGBs) at an annual pace of about 80 trillion yen Japanese PM announced a JPY 28T stimulus package to boost the economy. BOJ decision awaited. The underlying message of both central banks (Fed and BOJ) is that rates will remain low for a long time to support economic growth affected by lower productivity and falling inflation. G-20 meeting in China reiterated to use all policy tools - monetary, fiscal and structural - individually and collectively to achieve the goal of strong, sustainable, balanced and inclusive growth." G20 also noted other risks to global growth emanate from geopolitical conflicts, terrorism and refugee flows.

Important developments for next week: -Indian GST bill, RBI Policy and US Nonfarm payrolls Important levels to watch for are: 1) EUR/USD: 1.09/1.08 on the downside and 1.1250/1.1415 on the upside. 2) USD/INR Supports: 66.82/ 66.55 on the downside and 67.26/67.50/68.20 on the upside. Market developments: -Indian Nifty closed at 8638. -Gold closed at 1350 and WTI Crude closed the week at USD 41.40. -Indian 10 Year G-SEC closed the week at 7.16%. US 10 Year Yield closed at 1.45%.

Data Highlights of last week: -US New home sales rose to 593k, house price index climbed 5.2% y/y and consumer confidence improved to 97.3. -US durables order declined -4% m/m, pending home sales climbed 0.2% m/m. -US weekly jobless claims was reported at 266k. -US Chicago PMI improved to 55.8. -EU CPI(flash) rose 0.2% y/y. -German unemployment change was -7k. -German Gfk sentiment improved marginally to 10. -German Ifo survey improved to 108.3. -Japanese industrial production climbed 1.9% m/m, retail sales declined -1.4% y/y, and household spending declined -2.2% y/y. Unemployment rate was at 3.1%. -Japanese Core CPI declined -0.5% y/y.

Technicals: USD/INR: Spot closed below 20 and 50 day moving averages. 20 day moving average(spot) is at 67.18. 50 day moving average(spot) is at 67.26. 200 day moving average is at 66.82. Daily MACD is in sell zone, implying important top at 68.20. Important support zone is at 66.82 and later at 66.55. Important resistance is at 67.42 and later at 68.20

EURO/USD: Trend is sideways. The pair is above 50 and 200 day moving averages, but below 100 day moving average. Major resistance is at 1.1230 and later at 1.14. Major supports are at 1.09/1.08. Daily MACD is in buy zone, implying an important bottom at 1.09. Weekly MACD is in sell zone, implying important top at 1.1615.

GBP/USD: Trend is bearish in daily chart. Daily MACD is in buy zone, implying important bottom at 1.2775 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 107.60. Major support is at 99. Important resistances are at 107.60/110.90.

Strategy for USD/INR: Buyer’s credit be hedged from comfort angle. Imports be hedged.

Suggested Portfolio: 1) Buy USDINR with sl at 66.55 and sell with sl at 67.50.

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

1.1170 1.3222 101.94 67.01

1.0974 1.3104 105.95 67.08

WEEK % change 1.78 0.90 -3.75 -0.10

Data and Events for upcoming week: US Data: ISM(mfrg and non mfrg), ADP employment report, Personal income, spending and Core PCE data, Weekly jobless claims, factory orders, trade balance, nonfarm payrolls and unemployment data EU data: PMI, PPI, retail sales and German factory orders UK data: PMI(mfrg, services and construction), BOE monetary policy summary Japan: Consumer confidence.

USD/INR CHART:

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