21/04/18

RUPEE BREACHES 66, 10 YEAR YIELD @ 7.72%

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 declines on Crude worries.

-Indian G-SEC yields harden to pre monetary policy rates.

-US Yields surge, Sterling declines, WT1 Crude climbs

Important developments during last week: It was a week dominated by weakening Rupee, climbing crude prices,surge in Indian yields and TCS bonus issue.Rupee weakened 1.4% w/w to close at 66.12 as against prior week close of 65.20. RBI tried to contain weakness at 65.80 and again at 66.08. Despite huge FX reserves, RBI’S action was tenous. Recent Rupee weakness and the general strength of USD against majors in last fiscal has corrected Rupee overvaluation. There has been a sudden change in wind direction in USDINR pair as the negative impact of higher crude prices ad trade deficit was felt last week. With FII selling in April, it remains curious as to why RBI continued to buy USD and increase FX reserves. . RBI’s April minutes showed that RBI was hawkish than perceived on the day of monetary policy meeting.

Indian Equities shrugged off fear of crude prices and rallied on IT companies results. TCS announced bonus issue and that spurred TCS and other IT stocks higher. Metals also rallied. Banking and Oil OMC stocks were under pressure.                                           

Normally a parabolic fall in Rupee is also met with sharp reaction in the opposite direction. Rupee weakness could get capped either at 66.25 or at 66.70 and a retracement to 65.50 is possible. Only a move below 65.30 is unlikely in coming weeks.

Expect USDINR to trade in the 65.50-66.70 range in coming weeks.

FII’S have sold Rs 4181 Cr of Indian Equities in April till date . FII’S have sold 3586 Cr of Indian debt securities in April . On a cumulative basis, FII’S have bought Rupees 10702 Cr of Indian Equities till date for this calendar year and have sold  Rupees 5487 Cr of Indian debt in this calendar year till date.

IMD predicted normal monsoon for India this Year.

Global developments: US Yield surge, fall in Sterling and rising Crude prices were the dominant theme in Global markets. While EUR/USD continued to trade in a defined trading range, Pound weakened from 1.4350 to 1.40 levels. With inflation falling in UK, rate hike expectation has faded dragging Sterling lower. US 10 Year yield is at 2.95%. Upside break of 3% may fuel a USD rally against Euro and Yen.

IMF warned of risks to Global economy due to mounting Govt debt.

Chinese Q1 GDP grew 6.8% yoy, same as prior quarter and met expectation. People’s Bank of China lowered Reserve Requirement Ratio for most commercial and foreign banks by 1%, effective April 26. 

ECB meeting and US GDP are the events in focus in coming week.

Important developments for next week: ECB meeting and US GDP(advance estimate)

Important levels to watch for are: 1) EUR/USD: 1.2150/1.2050 on the downside and 1.2415/1.2475 on the upside. 2) USD/INR Supports: 65.60/65.30 on the downside and 66.25/66.70 on the upside.

Market developments:

-Indian Nifty closed at 10564.

-Gold closed at 1337 and WTI Crude closed the week at USD 68.28.

-Indian 10 Year G-SEC closed the week at 7.72%. US 10 Year Yield closed at 2.95%.   

Data Highlights of last week:

-US retail sales climbed 0.6% m/m, NY mfrg index dipped to 15.8 and TIC purchases.

-US housing starts climbed to 1.32 mn , building perimts was at 1.35mn and industrial production climbed more than expected by 0.5% m/m.

-US weekly jobless claims was at 232k and Phily Fed mfrg index climbed to 23.2.

-UK retail sales declined -1.2% m/m.

-Japanese Core CPI climbed 1.9% y/y.

-EU CPI climbed 1.3% y/y.

-EU consumer confidence closed flat.

-German Zew survey dipped to -8.2

-UK unemployment rate declined to 4.2% and claimant count change was reported at 11.6k.

-UK leading index declined -0.4% m/m.     

-UK CPI climbed 2.5% y/y, RPI climbed 3.3% y/y and PPI(output) climbed 0.2% m/m.

Technicals:

USD/INR : Spot closed above 100 and 200 day major moving averages. 20 day moving           is at 65.26. 50 day moving average is at 64.95. 200 day moving average is at 64.45. Daily MACD is in buy zone, implying bottom at 64.85 . Important support zone is at 65.90 and later at 65.30. Important resistance is  at 66.70.

EURO/USD: The pair is above 100 and 200 day major moving averages, but below 20 and 50 day moving averages. Next Major resistance is at 1.2415 and later at 1.2475. Major support is at 1.2150. Daily MACD is in sell zone, implying an important top at 1.2415. Weekly MACD is in sell zone, implying important top at 1.2560.

GBP/USD: Trend is sideways in daily chart. Daily MACD  is in sell zone, implying important top at 1.4375 and weekly MACD is  in sell zone, implying important top at 1.4375. The pair is trading above 200 day major moving average. Important resistance is at 1.4375. Important support is at 1.3915 and later at 1.3715.                  

USD/YEN: The pair is below major moving averages. Daily MACD is in buy zone, implying important bottom at 104.56. Important support is at 104.56. Important resistance is  at 108 and later at 110.40.                                 

Strategy for USD/INR: USDINR payables can be covered on dips to 65.60/65.30 for one month and exports can be covered on rally to 66.25/66.70 levels.

Suggested Portfolio: 1) Buy USDINR on decline with stop loss at 65.30 and sell closer to 66.25 and again at 66.70.                            

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: New and existing home sales, house price index, GDP(advance), durables order and weekly jobless claims EU data: German Ifo, EU PMI, ECB meeting UK: GDP(Preliminary) Japan: Industrial production, retail sales, housing starts, unemployment rate.