25/08/18

USD WEAKENS AGAINST MAJORS, RUPEE VOLATILITY CONTINUES

Highlights:

-GLOBAL and INDIAN MARKET DEVELOPMENTS

-DATA HIGHLIGHTS AND FX MARKET DEVELOPMENTS

-TECHNICALS

-STRATEGY FOR HEDGING AND SUGGESTED PORTFOLIO

-DATA AND EVENTS FOR NEXT WEEK.

Major economic events:

-Rupee Whipsaws in the 69.50-70.30 range.

-Indian Equity indices climb to new highs.

-Global markets shrug off US political worries and trade tensions.

Important developments during last week: Rupee recovered from last week close of 70.15. USDINR closed at 69.90. However, the pair was volatile, trading between 69.50 and 70.30. Higher Oil prices and fear of expanding trade deficit continued to weigh down on Rupee. USD’S weakness against majors helped cushion the fall. Expect 69.10-70.45 range in coming weeks.

There was no major macro economic data last week. Indian Q 1 GDP data is due for release on Aug 31 st.

FII’S have bought Rs 728 Cr of Indian Equities in Aug till 21/8 . FII’S have bought Rs 3264 Cr of Indian debt securities in Aug 21/8 . On a cumulative basis, FII’S have bought Rupees 2758 Cr of Indian Equities till date for this calendar year and have sold  Rupees 37875 Cr of Indian debt in this calendar year till date.                                                                              

Global developments: USD turned weaker with no apparent reason behind it. Oil climbed as US inventory fell more than expected. Euro is now back to Aug 1 st rate. US data suggests that trade war has had no effect yet in investments, However, sluggishness in EU mfg data raises fears of slow down in coming quarters.

Fed minutes indicated readiness to hike rates if economy is on track. FOMC minutes noted that “further gradual increases” in their
target rate “would be consistent with a sustained expansion of
economic activity, strong labor market conditions and inflation
near the committee’s symmetric 2 percent objective over the
medium term.”

US President sounded critical of Fed’s action in raising rates. He also reiterated his view that Yuan and Euro are mainpulated. USD weakend after his comments.

ECB’s monetary policy meeting minutes noted that “members considered that the risks surrounding the euro area growth outlook could still be assessed as broadly balanced”. Though, there are uncertainties related to global factors “notably the threat of protectionism.”. Also, “risk of persistent heightened financial market volatility also continued to warrant monitoring.”Bundesbank President Jens Weidmann warned today that ECB must not delay monetary policy normalization.

German Bundesbank noted in the latest monthly report that “economic boom in Germany was still ongoing”. In Q2, private consumption “continued its ascent” and was the “linchpin of economic growth”. Government consumption also rose “significantly”. Exports grew “moderately” following a drop at the start of the year.   

EU PMI(mfrg) data has flashed warning signs of manufacturing slowdown due to trade protectionism. EU’s market survey economist added that “warning lights on growth are flashing” as “risks seem tilted to the downside”. He noted “escalating political worries, rising prices and a recent slowdown in order book growth have all contributed to the gloomiest outlook for almost two year”.

And, “with manufacturing looking the most susceptible to a trade-led slowdown in coming months, hopes are pinned on a robust service sector helping to drive economic growth as we move into the autumn, yet even here optimism is down to its lowest for nearly two years.”

Important developments for next week: Indian GDP data

Important levels to watch for are: 1) EUR/USD: 1.13 on the downside and 1.1775 on the upside. 2) USD/INR Supports: 69.50/69.10 on the downside and 70.40 on the upside.

Market developments:

-Indian Nifty closed at 11557.

-Gold closed at 1212 and WTI Crude closed the week at USD 68.54.

-Indian 10 Year G-SEC closed the week at 7.87%. US 10 Year Yield closed at 2.83%.   

Data Highlights of last week:

-US existing home sales dipped to 5.34 mn.

-US weekly jobless claims declined to 210k, new home sales dipped to 627k and house price index climbed 0.2% m/m.

-US durables order declined -1.7% m/m.

-EU PMI(flash-mfrg) dipped to 54.6, PMI(services) was in line with expectation at 54.4 and consumer confidence was reported at -2.

-Japanese CPI climbed 0.8% y/y.

Technicals:

USD/INR : Spot closed above 100 and 200 day major moving averages. 20 day moving           is at 69.11. 50 day moving average is at 68.75. 200 day moving average is at 66.10. Daily MACD is in buy zone, implying bottom at 68.30 . Important support zone is at 69.52 and later at 69.30. Important resistance is at 70.40.

EURO/USD: The pair is below 100 and 200 day major moving averages. Next Major resistance is at 1.1775. Major support is at 1.13. Daily MACD is in buy zone, implying an important bottom at 1.13. Weekly MACD is in sell zone, implying important top at 1.2560.

GBP/USD: Trend is bearish in daily chart. Daily MACD  is in buy zone, implying important bottom at 1.2662 and weekly MACD is  in sell zone, implying important top at 1.4375. The pair is trading below all major moving averages. Important resistance is at 1.2957 and later at 1.3050. Important support is at 1.2660.

USD/YEN: The pair is above major moving averages. Daily MACD is in buy zone, implying important bottom at 109.70. Next important support is at 109.70. Important resistance is  113.   

Suggested Portfolio: 1) Buy USDINR on decline to 69.40 with stop loss at 69.10.                

Strategy for USD/INR: USDINR payables can be covered from cost angle.                            

Hedging suggestion: Considering the volatility in the markets, suggest hedging of Currency exposures be done from costing/affordability angle.

Currency Map:

Data and Events for upcoming week: US Data: Pending home sales, S&P house price index, consumer confidence, Chicago PMI, Core PCE, Personal spending and income and weekly jobless claims EU data: CPI, German retail sales, Ifo survey UK: No major data Japan: Unemployment rate and housing starts.