DAILY MARKET REPORT: Thursday - January 24, 2013

The Indian rupee opened at 54.70 levels after closing yesterday at 53.67 levels.  The Intraday range for the rupee is expected between 53.60 – 53.90 levels.

The rupee received some support yesterday from the foreign fund flows which amounted to nearly $3 billion so far in the month of January. The stock markets hovering near its two year high also supported the local currency.  

However the flows, which are seen increasing day by day won't help rupee in the long term as the uncertainty in the global markets will keep it very volatile.  With flows, there's need of consistent improvement in the local data.  Looking at the pace of rupee, it took almost 7 weeks for depreciation (from 51.70 - 55.60) whereas before that it had taken 14 weeks to appreciate (57.24 - 51.25). This tells us that when it weakens, it does it fast and with moderately high percentage as compared to the percentage of gains.

The sentiment seems to be little positive (short term) for rupee with Central Government taking the measures to curtail the fiscal and trade deficit. The recent reforms announced in the month of September on FDI were also seen carrying the same sentiment but it didn't last for long. In its continuous efforts to boost the exports, the RBI has allowed the exporters to access the foreign exchange market without utilizing the funds in their EEFC account.

The inflation and the trade deficit figures for the coming months will be very important. It will be very closely watched by the markets especially after the news on diesel deregulation and hike in gold import duty. The upcoming monetary policy of the RBI will be very significant considering the number of developments taken place in this month. The market seems to already price in a 25 bps rate cut.

After the World Bank, the IMF seems to be quite pessimistic on the global economy. The IMF forecasts the world economy to grow at 3.5% for 2013, down from 3.6% projected in October. However it said the economy will grow by 4.1% in 2014 only if the recovery takes a firm hold in the Euro zone.

In case of Europe, IMF said Spain is leading the contraction in the region and the growth in Germany will slow in the coming year. These forecasts signal towards an upcoming threat for the global economy and India if the euro zone continues with its prolonged stagnation.  

The US treasury yields edged lower to 1.81% and the Indian federal bond yields closed 1 bps higher at 7.86%.

Outlook: Exporters wait for initiating covers since the rupee has slid over 3 percent in the recent days. 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 but since rupee is slightly strong in short term on local news hence one should buy the pair on dips.

 EUR/USD:  The Euro is trading flat at 1.3323 levels against the US dollar. The movement in Euro will be closely watched as key Euro zone economic reports are in pipeline. The German manufacturing PMI will be the most important of all. Euro was seen falling slightly after the IMF downgraded Euro zone growth forecast for 2013 to 3.5% from 3.6% earlier. It said the stagnancy in the region will be posing threat to the world economy. Support is at 1.3240 and resistance is at 1.3495.

 GBP/USD: The Pound is trading at 1.5830 levels against the US Dollar. On the data front, the number of people claimed for unemployment reduced drastically to negative 12.1k versus the forecasted of 0.4k. Secondly, Unemployment rate which was hovering around 7.8% past four month reduced to 7.7% in January. Despite the better figures from UK we didn’t see pound recovering because of weak demand which is likely to show another contraction in GDP in Q4. In addition to the labour data, the market also saw the release of the MPC minutes, which showed no surprise as the committee voted unanimously to keep rates unchanged and kept the QE at GBP 375 Billion. The pair is expected to find a support near 1.5799 levels and the resistance is near 1.5893 levels. 

AUD/USD: Australian dollar is trading at 1.0544 levels against the US Dollar. The Australian Dollar was trading lower yesterday on account of weak Consumer price index which came at 0.2% versus the expected of 0.4% q/q basis. On an annualized basis the CPI grew from 2% to 2.2% but this is still weaker than expected and lowers than RBA projections. But it is likely to recover taking cues from the China Manufacturing PMI which came at 51.9 versus the previous figures of 51.5 which signals the recovery in China. The near term support is seen at 1.0508 levels while immediate resistance is at 1.0627 levels. 

USD/JPY:  The Yen is trading at 88.52 levels. The Japanese yen was seen gaining before the trade figures were released.  Yen is expected to be under pressure as their trade deficit numbers have shown a sign of worry. Annual trade deficit of Japan stands at 6.93 trillion yen in 2012, as their exports dropped to 5.8% more than expected of 4.2%. IMF seems to be optimistic about the Japanese economy as it has forecasted Japan to grow at 1.2% for this year. The near term support is seen at 86.85 and resistance is at 91.10.

Gold: Gold Prices in Dollars remained firm trading at $1683 per ounce.  Demand for gold is seen to be accelerating driven by Indian consumers who increase purchases ahead of the tariff hike. The gold prices internationally are seen to be increasing further as BOJ is accelerating its QE measures in January. The near term support is seen at $ 1678 levels whereas resistance is seen at $ 1698 levels.

Crude oil:  The crude is currently trading at 95.49 levels.  The EIA forecast that US total crude oil production and supply is likely to increase this year. Increasing production indicates uncertainty for crude oil prices in future. Higher crude price will have an impact on Euro zone which is still in process to revive its economy. Support is near 92.80 and resistance is at 97.60 levels.

Dollar Index: The US Dollar Index is trading at 79.96 levels. The Dollar index is trading slightly higher from yesterday’s level. An unexpectedly stubborn euro zone recession and weakness in Japan is weighing the global markets. The IMF meeting held yesterday said that it has trimmed its 2013 forecast to 3.5% from 3.6% said earlier. This could result in Euro weakening for the day which could bring hopes of Dollar Index recovering in the day.   The Support is near 78.99 and resistance is at 80.67 levels.

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