DAILY MARKET COMMENTARY: Tuesday - January 31, 2013

The rupee opened at 53.27 levels after closing yesterday at 53.30 levels. It is likely to trade in the range of 53.00-53.40 levels.

The rupee was seen strengthening yesterday on account of positive sentiments in the Indian markets amid increasing flows and the reduction in the policy rate. The gains in the rupee were also supported by the Euro which was trading at its 14 months high against the US dollar.

Recently, the finance minister of India expressed concerns over the country’s CAD and the fiscal deficit and said these are two main problems faced by India at present.  He assured the European investors that India is committed to pursuing economic reforms and the government will cut fiscal and current account deficits to help the economy return to 8 per cent growth.

As a part of its plan to cut its fiscal deficit to 5.3 per cent of the gross domestic product (GDP) in the current financial year, the government is adopting the disinvestment strategy. The government aims to raise Rs. 30,000crore by selling shares in the 2012-13 fiscal year.

In this regards, the government expects to raise more than Rs 2,500 crore ($465 million) by selling 10 percent stake in Oil India Ltd on Friday, 1st Feb. This stake sale will help the government to move towards 30,000-crorerupees disinvestment target set for the current fiscal. The government has so far raised Rs 6,900 crore through disinvestment. While about $2 billion stake sale in power producer NTPC is likely to take place on Feb. 7.

Reserve Bank of India chief Duvvuri Subbarao said yesterday that future rate cuts will depend not only on the inflation trend but also on the current account deficit.

The world’s largest economy, US contracted in the fourth quarter witnessing its first slump since 2009.  The Gross domestic product fell at a 0.1 percent annual rate after growing at 3.1 percent rate in the third quarter.

The US 10 year treasury yields are trading lower at 1.98%. Indian bond yields closed 4 bps higher at 7.89%.

Outlook: Exporters wait for initiating covers until it breaks the 53.00 levels on a weekly closing basis. Importers should cover on dips as and when comfortable and keep stop a loss of 53.85 levels. There is a very strong support close to 53.20 levels which will be difficult to break. OVERALL: USD/INR pair still maintains bullish.

EUR/USD:   The Euro is trading on stronger note at 1.3567 levels against the US dollar. The EUR/USD broke above 1.35 for the first time in 14 months and moved towards the level of 1.3587. Drivers for appreciation in the Euro were the strong Euro zone economic data and weak US Q4 GDP data which contracted to 0.1%.  For today, the data on Retail Sales, Unemployment and inflation in Germany and the Euro zone CPI numbers will be important to watch for.  The near term support is at 1.3308 and resistance is at 1.3680.

GBP/USD:   The British Pound has recovered against the US Dollar but it dropped to its lowest against Euro. The British Pound is trading higher at 1.5802 levels. There are two reasons for this recovery. Firstly, the net lending given to individuals has increased from Pound 0.9bn to Pound 1.7bn. Secondly, better than expected mortgage approvals which rose to 56k from 54k Month to month basis in December.  The pair is expected to find a support near 1.5602 levels and the resistance is near 1.5893 levels. 

AUD/USD:   The Australian dollar is trading at 1.0416 levels against the US Dollar. The mixed data released today morning showing an increase in housing sales month on month basis came at 6.2% versus 3% earlier. On the other hand, the import price came in below the expectation at 0.3% versus the forecasted of 0.5%. The currency was also down   amid speculation among international traders of further interest rate cuts because the data released of Australia hasn't been that strong. The near term support is seen at 1.0388 levels while immediate resistance is at 1.0485 levels. 

USD/JPY:    The Yen is trading at 90.89 levels. Japanese data of retail sales were seen growing a mere 0.1% in December. As a result, year over year retail trade growth slowed from 1.2% to 0.4%. The manufacturing PMI and industrial production reports will be critically examined today as this will show how much Yen weakness has helped the economy in the month of December. The near term support is seen at 88.00 and resistance is at 92.80

Gold:  Gold is trading at $1680 levels.  It saw an upward movement after the US Q4 GDP fell to -0.1%. It sustained at higher levels after the announcement of FED regarding keeping the monetary policy unchanged.   The near term support is seen at $ 1665 levels whereas resistance is seen at $ 1690 levels.

Crude oil:   The crude oil is currently trading at 97.92 levels. The near term support is at 95.50 and resistance is at 98.50 levels.

Dollar Index: The US Dollar Index is trading at 79.23 levels. The US dollar index fell below its one month low against the majors after the downbeat GDP data and pessimistic comments by the Fed Chairman. The world’s largest economy fell into contraction in Q4 for the first time since the second quarter of 2009. On the other hand, the ADP report showed an increase in jobs to 192k from 185k in the last month. But the weak GDP figures washed away the positive jobs report. The Federal Reserve left the monetary policy unchanged which was very much expected. But the negative comments by the Fed made the sentiments weak. The Fed said the economic activity has been witnessing a slump in recent months due to weather-related disruptions and other transitory factors. The Support is near 78.60 and resistance is at 80.67 levels.

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