DAILY MARKET COMMENTARY: Tuesday - February 12, 2013

The Indian Rupee opened at 53.94 levels after closing yesterday 53.84 levels. The Intraday range for the rupee is seen between 53.80 – 54.25 levels.

The Indian rupee weakened to a two-week low yesterday dropping for a fourth straight session, as dollar index recovers over 80 levels. Concerns about economic growth also continued to weigh after Reserve Bank of India Governor Duvvuri Subbarao said inflation was "still high," casting doubt about whether the central bank would cut interest rates at its March policy review in spite of sharply slowing economic growth.

As said earlier as well, the flows has seen running the show for Indian Rupee as well the trade deficit faced by the country. The volatile flows could only help for a while but the long term growth still remains under pressure.

The economy cannot be dependent on HOT MONEY; its reliance for long term growth is very low. Instead of focusing the short term flows, the government should try out other measures that could be effective for long term.

The temporary shift in the sentiments is making the rupee volatile, but we need to remember that the Macroeconomic fundamentals haven’t changed. The economy growth could be sustained at the time of crisis only on the back of strong local fundamentals. We have seen countries like Turkey and Indonesia outperforming in recent time.

Events for the day, Indian IIP and CPI data is due for the day, which will be keenly watched by the market.

Looking at Euro, it is trading within sight of a two-week low against the dollar, while regionally trading was muted as most Asian markets were closed for the Lunar New Year holiday.

The US 10 year Treasury yield is trading flat at 1.96%. The Indian Federal 10 year bond yield closed 2 bps higher at 7.86% than the previous close of 7.84%.

Outlook: As suggested earlier, exporters can start initiating long term covers at 54 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 trading at 1.3392 levels against the US dollar. The Euro saw a slight appreciation yesterday after the comments from the Euro zone Finance Ministers in Brussels. The members were seen expressing mixed views on the Euro. The important driver for the Euro was the comment from the German leaders who are of view that the euro is not overvalued. Further all eyes are on the G-20 & G7 meet ahead for further cues on the euro movement. The near term support is at 1.3308 and resistance is at 1.3680.

GBP/USD:  The British Pound is trading weaker at 1.5648 against the US Dollar. It dropped more than 1% against the Euro. In the past, EUR/GBP used to be one of the least interesting currency pairs because of small intraday volatility but over the past 2 weeks, volatility in this pair has increased significantly. No major economic data were released yesterday. The pair is expected to find a support near 1.5624 levels and the resistance is near 1.5845 levels. 

AUD/USD: The Australian Dollar currently is trading at 1.0251 levels which is at six month low. On the data front, the housing loans approvals which was released yesterday came in negative 1.5% versus the forecasted of 0.1%. This is the fourth time in past four months the home loans have come out negative. This might be one of the reasons for the RBA to cut interest rates in the upcoming monetary policy. The People Bank of China who is the major buyer of Commodity currency is closed due to lunar New Year holiday. The near term support is seen at 1.0237 levels while immediate resistance is at 1.0423 levels. 

USD/JPY:   The Yen is seen breaching the 94 levels and currently trading at 94.25 levels. The yen depreciation was supported by two quotes. The US treasury officials praised Japan's efforts to boost growth and end deflation target and extended their support for the same. Another supporting quote was from Mr. Kuroda, a possible candidate for BOJ Governorship who supported accommodative monetary policy. These comments signalled further weakness in the yen for this year. The near term support is seen at 90.00 and resistance is at 94.90.

Gold:  Gold was seen trading below $ 1650 levels, currently trading at $1645 per ounce. The gold prices saw a fall on the back China’s holiday witnessing a lack of demand for the physical asset. The gold prices are seen under pressure amid currency fluctuation and stock market boom. The near term support is at $ 1627 levels whereas resistance is seen at $ 1667 levels.

Crude oil:  The crude oil is seen trading at 96.87 levels. The crude oil prices are trading on a higher note after the US and China posted a strong trade data which will boost the energy demand.  Latest report showed China’s exports jumped 28% year-on-year. The near term support is at 93.60 and resistance is at 98.20 levels.

Dollar Index: The US Dollar Index is trading higher at 80.38 levels. The US dollar index is seen making strong gains against its majors and is nearing the levels of 80.50. It is seen gaining after a strong economic data from the world’s largest economy. The monthly deficit narrowed to $38.5 billion, well below the market forecast of $45.7 billion. This was the smallest deficit since January 2011. Yesterday’s speech of the FOMC member Yellen supported the US dollar as she said that although the progress is too low the job market is seen improving. However she said she favours the easy monetary policy of the Fed amid slowing economic recovery.  The Support is seen near 78.90 and resistance is at 80.87 levels.

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