DAILY MARKET COMMENTARY: Wednesday - January 30, 2013

The rupee opened at 53.55 levels after closing at 53.76 levels yesterday. It is likely to trade in the range of 53.40-53.70 levels.

The Indian rupee appreciated against the U.S. dollar yesterday as sentiment slightly improved after country's central bank reduced its key interest rates by 25 basis points. The central bank brought about a tilt in its monetary policy to support growth over medium term.

The RBI lowered its key policy rate as expected for the first time in nine months to support growth. RBI cut the repo rate and CRR both by 25bps. Repo rate now stands at 7.75% and CRR at 4%. CRR cut will infuse the liquidity worth Rs.18,000 cr  in the system. 

 

It has projected GDP growth for the current year, 2012-13, of 6.5 % to 5.8 % signalling increasing global as well as accentuated domestic risks. It has also reduced its target for inflation to 6.8% from 7.5% for March quarter.  

Talking about the concerns over the CAD, the central bank said financing this deficit with short term flows will not be very practical as these flows are risky and volatile.

Looking at the foreign investment scenario, the latest data shows that the FII's invested funds worth $3.49 bn in the Indian equity markets so far in the year 2013.

The funds may continue to pour into emerging markets as investors exit from US government bonds and seek out high-risk equity assets for protection against inflation. The Indian markets as well as emerging market equities have been rallying while US bonds prices have fallen 2% in the past one month.

The cumulative outflows from US bonds since the beginning of December stand at $5.25 billion, though the broader trend of outflows started late in the second quarter of 2012.

The US 10 year treasury yields inched higher to 2% against 1.98% seen yesterday. The 10-year benchmark bond yield ended at 7.85 percent, down 1 bp from its Monday close.

Outlook:Exporters wait for initiating covers till we see significant recovery in US dollar till 54 levels at least. Importers should cover on dips as and when comfortable and keep stop loss of 54.10 on worst case in case unable to cover below 54.00 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 a very strong note at 1.3490 levels against the US dollar. The euro rose taking cues from the better than expected German economic data and weaker U.S. consumer confidence. German GFK consumer confidence came out at 5.8 versus 5.7 the month prior continuing the trend of improving sentiment in the Euro zone’s largest economy. For the day, Italian 10 year bond auction will be the crucial event to watch for. The near term support is at 1.3250 and resistance is at 1.3550

GBP/USD: After witnessing a sell off on Monday, the British Pound recovered against Dollar and Euro. The British Pound is trading higher at 1.5754 levels. One of the major reasons for the recovery can be the absence of economic data yesterday. For the day, we have Mortgage approvals due, which is expected to be better than the past figures.  The pair is expected to find a support near 1.5602 levels and the resistance is near 1.5893 levels. 

AUD/USD: Australian dollar is trading at 1.0470 levels against the US Dollar. The Australian Dollar recovered from yesterday’s level on account of positive economic data from the economy. The Australian businesses are now optimistic about the outlook for the global economy and hopefully this will convert into more investments domestically. The increased risk appetite in the market also helped the AUD to rally against the US dollar. The near term support is seen at 1.0388 levels while immediate resistance is at 1.0590 levels. 

USD/JPY:  The Yen is trading at 90.91 levels. The Japanese Yen saw a slight appreciation against the US dollar yesterday because of downbeat US consumer confidence data. However this appreciation is expected to be short lived. The yen needs new channel for further depreciation. Today’s U.S. Q4 GDP report and the FOMC meeting might provide the further clue for yen movement. The near term support is seen at 88.00 and resistance is at 92.80.

Gold:  Gold is trading at $1660 levels.It has witnessed a slight rebound after the data showed a slump in the consumer confidence in the US. Today’s FOMC meeting minutes can give direction to the bullion prices ahead. If the Fed stops its quantitative easing program, it can give an upward direction to gold prices.  The near term support is seen at $ 1645 levels whereas resistance is seen at $ 1672 levels.

Crude oil:   The crude oil is currently trading on a higher note at 97.55 levels. It took an upward move after the strong US housing market data indicating confidence for economic growth. The US Q4 GDP numbers and Fed policy meeting are keenly observed for signs of a potential improvement in fuel demand. The near term support is at 95.50 and resistance is at 98.00 levels.

Dollar Index: The US Dollar Index is trading at 79.79 levels. There have been a number of data releases from the US side in the last one week. Out of those, consumer confidence and job market data have shown signs of weakness. On the other hand, the retail sales, manufacturing & services sector have performed better than the expectations. These numbers suggest that the US economy is recovering gradually. The Support is near 78.99 and resistance is at 80.67 levels.

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