FX – MORNING UPDATE :

USDINR opened at 83.14 on Thursday and the pair traded in the 83.08-83.15 range. Spot USDINR closed at 83.11, loss of 2 ps for USD as against prior close of 83.13.

RBI reference rate was fixed at 83.11 on 25/01. Jan USD/INR closed at 83.11 on Thursday, loss of 5 ps for USD as compared to prior day’s close of 83.16. Jan Euro/INR closed at 90.53, GBP/INR at 105.83 and Yen/INR at 56.35. 1 year USDINR fwd premia was trading at around 1.86% p.a.  FX reserves stood at USD 616 bn, as on Jan 19 th. Reserves declined by USD 2.93 bn w/w.

In Jan, FPI’S have sold Rs 36036 Cr of Equities and bought Rs 16951 Cr of debt . In last calendar year, FII’S have net bought Rs 172853 Cr of Equities and have net bought Rs 70489 Cr of debt.

Benchmark Nifty declined 101 points (0.47%) on Thursday. US S&P declined 3 points (0.07%) on Friday. Nikkei declined 1.36% and Hang Seng declined 1.60% on Friday.

Euro is now at 1.0854, Pound at 1.2702, Yen at 148.15.

Commodities: Gold is now at USD 2018 and WT1Crude at USD 78/Brent at USD 83.60.

Interest rates: USD 10 Yr yield is at 4.14% and 3 m libor closed at 5.59%. Indian 10 yr benchmark yield closed at 7.17%.

Economic news: Indian merchandise trade deficit decreased to $19.8 billion in December 2023 from $23.14 billion in the same month the previous year. Imports totaled USD USD 58.25 and exports was at USD 38.45 bn. The merchandise trade deficit improved by 11.45% from USD 212.34 billion in April-December 2022 to USD 188.02 billion in April-December 2023. The overall trade deficit improved by 35.87% from USD 108.13 billion in 2022 to USD 69.34 billion in 2023, 

US GDP in the fourth quarter expanded at a 3.3% annualized rate, topping expectations for a more run-of-the-mill 2.0% increase. Residential investment notched a second straight increase in a sign housing activity has bottomed, while government spending plowed ahead at a 3.3% clip. Business investment also picked up over the quarter, including a rebound in equipment spending. December orders of durable goods, also released this week, signaled capex growth should continue in the near term. Real consumer spending grew 2.8% annualized in Q4, barely slowing from the third quarter’s impressive 3.1%. The PCE deflator excluding food and energy—the FOMC’s preferred gauge of the recent trend in inflation—rose a rather tame 0.2% in December. Over the past six months, core PCE inflation has risen at a 1.9% annualized pace, a touch lower than the central bank’s target of 2.0%.

ECB reiterated that it “considers that the key ECB interest rates are at levels that, maintained for a sufficiently long duration, will make a substantial contribution” toward returning inflation to its 2% medium-term target in a timely manner. The ECB also again highlighted a data-dependent approach to conducting monetary policy. On that front, the ECB said the declining trend in underlying inflation has continued and that past interest rate increases continue to be transmitted forcefully into financing conditions.

People’s Bank of China (PBoC) announced a reduction in its Reserve Requirement Ratio (RRR) to ease domestic liquidity conditions.

Fed, BOE rate meetings and US employment data along with ISM (mfrg) will be the focus events for the week.

Data highlights: – US Weekly jobless claims climbed to 214k and Core durables order climbed 0.6% m/m.

-US Core PCE Index climbed 0.2% m/m. Personal spending climbed 0.7% m/m and income climbed 0.3% m/m.

-US GDP(adv) climbed 3.3% q/q and new home sales climbed to 664k.

-German ifo survey dipped to 85.2.

Monday’s calendar : –  No major data release.

Daily Support/Resistance table

 MAJOR SUPPORTS/RESISTANCES AND TREND TABLE

Technicals: Spot closed below 20 and  50 day average but above 200 day moving averages.20 day moving average is at 83.15. 50 day moving average is at 83.22.200 day moving average is at 82.75. Daily MACD is in buy zone. Important support is at 82.80 and important resistance is at 83.17/83.24. Spot closed at the average level of the day.

Intraday supports and resistances for Jan contract are:

PP: 83.12, S1:83.08, S2:83.05, R1:83.15, R2:83.19.             

Hedging strategy: Hedging decisions be taken according to comfort and accounting rates.

However on directional basis, suggest the following:

USD exports be hedged at 83.35/83.40. Imports be hedged at 82.92/82.80 for 3 months.

CROSS CURRENCY TECHNICALS:

EURO/USD: The pair is between major moving averages. Major resistance is at 1.0935/1.10. Next major support is at 1.0770. Daily MACD is in sell zone, implying an important top at 1.1275. Weekly MACD is in buy zone, implying important bottom at 1.0450.

GBP/USD: The pair is above all major moving averages. Daily MACD is in sell zone, implying important top at 1.2810 and weekly MACD is in buy zone, implying important bottom at 1.25. Important support is at 1.2610/1.25. Important resistance is at 1.28/1.30.

USD/YEN: The pair is above all major moving averages. Daily MACD is in buy zone, implying important bottom at 140. Important resistance is at 148.90/150 and support is at 146/144.35.