DAILY MARKET REPORT: Thursday - January 3, 2013

The Indian Rupee opened at 54.39 levels after closing yesterday at 54.34 levels. The Indian rupee rose to its strongest against the dollar in nearly three weeks as agreement over the U.S. "fiscal cliff" deal boosted risk appetite.  The Intraday range for the rupee is seen between 54.25 - 54.70 levels.

The Indian record current account deficit is "worrying," Finance Minister P. Chidambaram said on Wednesday.The Gap is the widest in absolute terms since 1949.

Indian gold imports rose 9% to 223.1 tonnes in the September quarter, after a 56% fall in the June quarter to 131 tonnes. The FM has hinted at cutting gold imports to bolster weak external accounts. The Gold is the biggest contributor to the import bill after crude oil and is easier to control than energy supplies.

The Reserve Bank of India has asked that the volume and value restrictions be placed on gold imports by banks and agencies to help rein in a current account gap which touched an all-time high in the July-September quarter.

The Asian markets are trading positive after U.S. manufacturing added to optimism that the outlook for economic growth is improving. The global equity markets surged yesterday after the House of Representatives passed a bill in Washington by a vote of 257-167.

We expect the uncertainty to continue even after the US fiscal cliff bill passed by lawmakers, as the issue of debt ceiling when the Treasury Department runs out of borrowing authority and has to come to Congress to get the ceiling raised in late February. The next is likely in late March, when a temporary bill to fund the government runs out, confronting Congress with a deadline to act or face a government shutdown.

The $16.4 trillion debt limit as the true fiscal cliff in the new year because if not increased, it would eventually lead to a default on U.S. Treasury debt, an event that could prove a cataclysmic for financial markets. The focus will be seen shifting from Euro Zone crisis to US debt issues in 2013. And we expect the volatility to be at its high.

The US 10 year Treasury yield is trading 2 bps lower at 1.83%. The Indian benchmark 10-year bond yield ended unchanged at 7.99%. The bets on a January rate cut by the central bank and hopes the government would stick to its borrowing target keep the outlook positive.

Outlook: Exporters were already asked cover partially around 55 plus levels, Importers should cover on dips around 54.20 - 54.40 levels. Overall: USD/INR Bullish

 

EUR/USD: The EUR/USD is currently trading stronger at 1.3169 levels.  The Euro was trading lower against the US dollar after trading close to 1.33 levels yesterday. The slump in the PMI data of Euro zone made the currency to move lower. Markit's Eurozone Manufacturing Purchasing Managers' Index (PMI) edged down to 46.1 in December from November's 46.2, below a preliminary reading of 46.3. It has been below the 50 mark that divides growth from contraction since August 2011.  The slump in Spain deepened and Italy's PMI, although improved, remained below 50 for the 17th month. Support is at 1.3066 levels, and the resistance is near 1.3375 levels.

GBP/USD:  The Pound is trading at 1.6237 levels against the US Dollar. The UK Manufacturing PMI expanded at its fastestpace in 15 months in December due to improvement in domestic demand, indicating some strength in the economy at the year end. The factory activity rose to 51.4 from 49.2 in November. The report released reduces the chances of UK going intotriple dip recession after the economy resumed expansion in the third quarter. The pair is expected to find a support near 1.6105 levels and the resistance is near 1.6500 levels. Overall in a range with bearish bias.

USD/JPY: The yen is currently trading at 87.20 levels.  The Yen continued its depreciation against the US dollar. In itsupcoming policy meet on 21^st Jan, the Bank of Japan is expected to increase its inflation target. With the risk in the FX markets eased by the U.S. Fiscal Cliff deal, USD/JPY could continue to trend higher in anticipation of more aggressive monetary policy from the BoJ. Near term support is at 85.50 levels and the near term  resistance is at 88.08 levels. Target of 85 levels achieved and next target remains at 90 levels.

AUD/USD:   The Australian dollar is trading  at 1.0488 levels against the US Dollar. Near term support is seen at 1.0290 levels while immediate resistance is at 1.0588 levels. 

Gold: Gold is trading at $1686 levels. Gold traded above its two week high after the U.S. lawmakers passed a bill avertingautomatic spending cuts and tax rises.  Near term support is at $1675 levels, whereas strong resistance can be seen near $1695 levels. Look for further dips to initiate buys

Oil: WTI Crude is trading at $92.65 levels. The Crude oil traded above its three week high amid positive sentiments on news the US Congress passed a fiscal package that prevents most of the automatic tax hikes expected to push the world's biggest oil consumer into recession. Support is at $89.85 levels, whereas strong resistance can be seen near the $93.75 level. Overall range bound.

DI: Dollar index is trading at 79.90 levels.  The US dollar index is trading above two week high against its major counterparts. The positive economic report also helped the dollar index to return to its positive territory. The ISM manufacturing PMI rose to 50.7 from 49.5 in the last month, indicating expansion thanks to higher prices paid, order backlog, supplier deliveries, customer inventories, new export orders, imports and employment.  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.)