DAILY MARKET COMMENTARY: Friday - February 15, 2013

The Indian Rupee opened at 53.94 levels after closing yesterday at 53.92 levels. The Intraday range for the rupee is seen between 53.75 – 54.00 levels.

The headline inflation rate moderated to its lowest level in more than three years in January, helped by a slower rise in fuel and manufactured goods prices. Inflation stood at 6.62% for the month of January from a year earlier, the slowest pace since November 2009 and below the 7%.

The RBI had forecast a moderation in headline inflation in the January-March quarter when it cut interest rates by 25 bps last month. But, it also warned that inflation would have to ease more than expected, and the current account deficit would have to come down, to enable the bank to make further reductions in rates.

Despite exports having improved, the high trade deficit remains a worry and will keep the rupee under pressure.  Having a look at the numbers, last year in 2011-12 the Indian economy registered the growth of 6.2% while the current account deficit stood at 4.2% of GDP. While in 2012-13 the economy is estimated to grow at the rate of 5% and CAD to be around 5.4% of the GDP. The Asian markets are trading lower as investors turns cautious as weak euro zone growth data presaged the G20 meeting in this session and on Saturday in Moscow.

The euro steadied around $1.3359 after falling to a three-week low of $1.3315 as report showed the 17-nation euro zone economy shrank by 0.6% in the last three months of 2012. The bloc's two largest economies, Germany and France, also contracted by more than expected, dampening hopes for a recovery in early 2013.

Not only did the Euro zone contract for the third quarter in a row, but growth in the region has fallen 4 out of the last 5 quarters with the contraction in Q4 of last year being the deepest since 2009.  While the outlook has brightened this year, the disappointing data still led to a round of sharp profit taking in the EUR/USD.  Another reason why the EUR/USD is under pressure is because Moritz Kraemer, S&P's Managing Director of European Sovereign Ratings said Spain, Italy, Portugal and France could be downgraded this year. 

The US 10 year Treasury yield is trading higher at 1.99%. The Indian Federal 10 year bond yield closed 2 bps lower at 7.82% than the previous close of 7.84%.

Outlook: As suggested earlier, exporters can start initiating long term covers at 53.90 or plus levels in a phased manner. Importers should make the most of the correction in the market and Importers should cover on dips as and when comfortable. OVERALL: USD/INR pair still maintains bullish.

EUR/USD:  The Euro is seen trading lower at 1.3360 levels against the US dollar. The euro was seen trading below three week low against the US dollar after the GDP numbers came out weaker than expected. Germany and France, the 2 largest economies in the Euro zone both experienced weaker than expected growth at the end of the year The near term support is at 1.3250 and resistance is at 1.3520.

GBP/USD:  The British Pound is trading weaker at 1.5514 against the US Dollar which is at seven month low. On the data front, we have the retail sales figure due for the day which is expected to be better than the previous month. The earlier data, which showed the improvement in the consumer confidence, decline in jobless claims, gives a hint of better retail sales. The pair is expected to find a support near 1.5456 levels and the resistance is near 1.5845 levels.  

AUD/USD: The Australian Dollar currently is trading at 1.0359 levels. It recovered marginally on account of better consumer confidence which boosted the sentiment for Australian Dollar. Other than this, no major economic reports were released from the Australia. The near term support is seen at 1.0237 levels while immediate resistance is at 1.0423 levels.   

USD/JPY:  The yen is seen trading on a firm note at 92.60 levels.  The Yen is seen gaining against the US dollar since last three sessions, ahead of the G-20 meet meeting which starts today. There are speculations that the Yen will be its main focus, which is making markets cautious. The yen is also supported after the BOJ at its policy meeting left the rates unchanged and refrained from adding stimulus. The near term support is seen at 90.00 and resistance is at 94.90.

Gold:   The Gold is at five months low currently trading at 1633 levels. The Gold traders are on mounting speculation that improving economic growth from US to China will curb the gold demand for this year.  The global gold demand has slipped last year on reduced buying in India. According to the World Gold Council, Central Banks and Institutions Investors stepped up their purchase but it was not that sufficient to offset the decline in demand. The near term support is seen at $1610 levels while resistance is seen at $1654 levels.

Crude oil:  The crude oil is seen trading at 97.42 levels.  Crude oil prices held steady amidst a rising dollar and downbeat economic data from Europe.  Talking about the demand for crude oil, it on a rising trend. The OPEC raised forecasts for the amount of crude it will need to supply this year because of stronger fuel demand in emerging economies. The near term support is at 94.90 and resistance is at 98.20 levels.

Dollar Index: The US Dollar Index is trading at 80.34 levels. The US dollar index is seen sustaining above 80.00 levels, supported by the weak GDP numbers from the Euro zone and a better than expected jobs data from the US. The Euro zone economy fell into deepest recession since 2009 as its GDP contracted by 0.6% in the fourth quarter. The jobless claims from the US dropped 27k to 341k this week, which was the second lowest reading for claims since Jan 2008.  For the day, US manufacturing index and the consumer sentiment will be released. The Support is seen near 78.90 and resistance is at 80.87 levels.

(Source: Corporate Communications, India Forex Advisors Pvt Ltd)