DAILY MARKET REPORT: Friday - December 28, 2012

The Indian Rupee opened at 54.86 levels after closing yesterday at 54.93 levels. The Intraday range for the rupee is seen between 54.80 - 55.10 levels.

The burden of the huge fiscal deficit is making the central to lose its sleep, and compelling them to hike the petroleum prices. The hike in diesel prices is expected in 2013 and even kerosene is also slated to turn costly by Rs 10 per liter over the next two years. The huge fiscal deficit and the threat of rating downgrade has left the Centre government with no option but to go in for the unpopular measure.

The Asian markets are trading higher after a report that the country’s consumer prices fell increasing the expectations of drastic monetary easing. No one knows whether Congress will be able to reach a deal to avoid the Fiscal Cliff before Monday's deadline.

The market players still expect an agreement to be made, after the House scheduled a special session on Sunday, giving the market hope that they will work through the weekend and vote for a deal the day before the December 31st deadline.

If no deal is made by December 31st but Congress pledges to make an announcement in the first two weeks of January, currencies and equities could drop only slightly in disappointment because investors will be willing to grant a short grace period. But if the talks break down completely then we can expect a sharp sell-off in currencies as risk appetite drives investors into safe haven assets.

The US 10 year treasury yield is trading lower at 1.73%. The Indian 10 year bond yield closed flat at 8.11%.

Outlook: Exporters cover partially around 55 plus levels, while Importers cover on dips around 54.55 - 54.60 levels who missed the levels of 54.10 - 54.20. Overall: USD/INR Bullish

EUR/USD: The EUR/USD is currently trading stronger at 1.3231 levels. The Euro is trading above its one week high against the US dollar. The Euro will rally if the fiscal cliff deal is reached before the year ends. However, if both the parties in the US fail to come to an agreement before year end, then we might see Euro falling towards 1.30 levels against the US dollar.  Support is at 1.3068 levels, and the resistance is near 1.3310 levels.

GBP/USD: The Pound is trading on a weaker note at 1.6110 against the US Dollar. In the UK, BBA Mortgage approvals showed little change, and came in at 33.6k v/s the forecasted figure of 34.6k. The pair is expected to find a support near 1.6050 levels and the resistance is near 1.6300 levels. Overall in a range with bearish bias.

USD/JPY: The yen is currently trading at 86.41 levels. The yen hit its lowest level in more than two years amid expectations of drastic monetary easing by the central bank. Yesterday’s data showed a decline in the Japan’s CPI, which further increased the chances that the central bank will ease the policy to end the deflation. Near term support is at 85.50 levels and the near term  resistance is at 88.08 levels. Target of 84-85 levels achieved and  further target it to 90 levels.

AUD/USD: Australian dollar is trading  at 1.0373 levels. After the Christmas break, the markets are back in action but the AUD / USD is trading in a very narrow range. The final trading week of the year tends to be uneventful but with fiscal cliff talks going on, we might see some volatility in the currency markets. Near term support is seen at 1.0290 levels while immediate resistance is at 1.0588 levels. 

Gold: Gold is trading at $1663 levels. Near term support is at $1650 levels, whereas strong resistance can be seen near $1670 levels. Look for further dips to initiate buys.

Oil: WTI Crude is trading at $91.34 levels.  Crude oil prices rose to the highest level since October amid hopes President Barack Obama and Republicans will reach a budget agreement to avert the looming fiscal cliff ahead of the year-end deadline Support is at $88.20 levels, whereas strong resistance can be seen near the $93.60 level. Overall range bound.

DI: Dollar index is trading lower lower at 79.66 levels.  Yesterday’s economic reports could not impact the US dollar index much as the US budget talks are likely to resume.  The data showed that the  labor market conditions continued to improve with jobless claims falling to 350K from 362K. Whereas the consumer confidence fell to 65.1 from 71.5 in the last month. The economic data were completely overshadowed by the Fiscal cliff talks. The lawmakers have only 5 days left to come up with a plan to avert the fiscal cliff, and the market will be closely watching the outcome of the talks.  Strong near term support seen near 78.90 levels and 

the resistance is at 80.20 levels. Overall the index is bullish.

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