DAILY MARKET REPORT: Tuesday - December 18, 2012

The Indian Rupee opened at 54.70 levels after closing yesterday at 54.85 levels. The rupee has dropped to 54.89 levels its weakest since December 4. The Intraday range for the rupee is seen between 54.60-55.00 levels.

The caution also prevailed ahead of the Reserve Bank of India's policy review on schedule for the day. The central bank is expected to keep interest rates unchanged, but may deliver a cut in the cash reserve ratio (CRR).

The RBI has kept its key borrowing rate at 8% since April. The wholesale price index has remained above 7% for the past three years, a key reason why the RBI has refrained from lowering policy rates since April's 50-basis point cut.

The India lowered its official growth forecast to between 5.7 and 5.9% for this fiscal year, the finance ministry's mid-year economic review said on Monday, but said it was on track to meet a fiscal deficit target of 5.3%.

The Asian markets are trading higher tracking the overnight gains in U.S. stocks on optimism for progress in resolving the U.S. budget crisis before the year-end deadline. The fiscal cliff remains a major focus for markets, prices may become unlikely to rise with players taking profits to close their books before leaving for the holidays. Their third conversation in the past 5 days - and while no announcements or hints of progress were made, but it has been just the high-level meetings do improve the investor sentiment.

If we don't receive daily updates on the Fiscal Cliff talks and more investors grow worried about the lack of progress, we could see further losses in all of the major currencies as investors take profit or hedge their positions before next week's holidays

The ECB President Draghi admitted that LTRO money struggled to reach the economy and his view that there is no inflationary impact from the expansion of the monetary base implies that the central bank retains a dovish bias.

The US 10 year Treasury yield is trading higher by 4 bps at 1.78%. The Indian bond yield closed at 8.14% the lowest level since Oct. 29. Indian bond yields were at a seven- week low on optimism easing inflation will create room for the central bank to relax monetary policy.

Outlook: Uncovered Exporters wait till 54.80 to start covering partially . The 54.10 is still seen as a very crucial support, and rupee is seen holding above it. The breakout below 54.10 Levels and rupee sustaining below it for a few sessions, would it push further to around 53.50 levels. Importer cover close to 54.00 (Plan A) and below and also use strict stop loss of 54.55-60 (Plan B) to cover the unhedged exposures. Overall USD INR bullish target 55.00 again.

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