19/05/18

RUPEE still on weakening path, EQUITIES decline

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 to 68.

-Indian Equities decline w/w.

-USD climbs higher supported by rise in treasury yields.

Important developments during last week: Rupee weakened 1% w/w to close at 68 as against prior week close of 67.32 . Rupee swayed on both sides  between 67.20 and 68.13. RBI stepped in to sell at 68+ levels. However, there was no let up in USD demand due to convergence of factors. FPI outlows from debt market, rising US yield, steep climb in crude prices, cancellation of Iran nuclear deal and outcome of Karnataka election impinged USDINR direction and magnitude. Rupee is now one of the worst performing EM currencies this year and is already down over 7.5% from 63.25 levels seen in January this year. Indian Equity market also had 4 straight days of losses after the election outome. On macro ecomimc data front, inflation edged higher even as IIP declined.Indian IIP growth slowed to 4.4% in March as agaisnt prior month’s downwardly revised 7% growth. Indian April CPI edged higher to 4.58%. vs 4.28% in March. Food inflation remained steady at 2.8%.

Expect USDINR to trade in the 67.50-68.40 range in coming week.

Global developments: Euro declined on populist demands from Italian political parties on EU treaty. Euro fell despite comments from French Central bank Governor that ECB is closer to ending asset purchase program. USD surged as it was boosted by rising US Treasury yields. US trade wars with China and EU showed no signs of settlement as US President remained steadfast even as US and Chinese officials continued trade dialogue to settle the newly initiated trade tariff war.

On the Geo political front, North korea threatened to walk away from discussion if US imposes any nuclear disarmament treaty on its own.

Crude prices continued to soar due to US stance on Iran nuclear deal and draw down in inventories.

IMF forecasts Eurozone growth to slow to 2.3% this year, from 2017’s 2.4%, and drop further to 2.0% in 2019

Japanese GDP contracted -0.2% qoq in Q1, worse than expectation of 0.0% qoq. On annualized basis,GDP contracted -0.6% versus expectation of -0.1%.

Focus will be on Fed minutes of last meeting to be released on Wednesday and ECB meeting minutes. Markets would continue to be focused heavily in the week ahead on the progress of US-China trade talks, crude oil prices, and government bond yields.

Important developments for next week: Fed minutes, UK inflation report

Important levels to watch for are: 1) EUR/USD: 1.1710 on the downside and 1.2150/1.2210 on the upside. 2) USD/INR Supports: 67.47/67.10 on the downside and 68.10/68.80 on the upside.

Market developments:

-Indian Nifty closed at 10596.

-Gold closed at 1291 and WTI Crude closed the week at USD 71.38.

-Indian 10 Year G-SEC closed the week at 7.83%. US 10 Year Yield closed at 3.07%.   

Data Highlights of last week:

-US retail sales climbed 0.3% m/m, NAHB index was reported at 70.

-US building permits was reported at 1.35 mn, housing starts dipped to 1.29 mn. Industrial production climbed 0.7% m/m.

-US weekly jobless claims climbed to 222k and Phily Fed mfrg index climbed to 34.4.

-EU Core CPI climbed 0.7% y/y.

-EU GDP climbed 0.4% q/q, industrial production climbed 0.5% m/m  and German Zew survey declined to -8.2.

-UK unemployment rate was reported at 4.2% and claimant count change was at 31.2 k

Technicals:

USD/INR : Spot closed above 100 and 200 day major moving averages. 20 day moving           is at 67.02. 50 day moving average is at 65.81. 200 day moving average is at 64.66. Daily MACD is in buy zone, implying bottom at 64.85 . Important support zone is at 67.47 and later at 67.10. Important resistance is  at 68.80. Spot closed above its average level of the day.  

EURO/USD: The pair is below all major moving averages. Next Major resistance is at 1.2150 and later at 1.2210. Major support is at 1.1710. 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 bearish in daily chart. Daily MACD  is in buy zone, implying important bottom at 1.3450 and weekly MACD is  in sell zone, implying important top at 1.4375. The pair is trading below all major moving average. Important resistance is at 1.3710 and later at 1.3965. Important support is at 1.3450 and later at 1.33.  

USD/YEN: The pair is above 200 day major moving average, but above 50 and 100 day moving averages. Daily MACD is in buy zone, implying important bottom at 108.64. Important support is at 108.64. Important resistance is  111.50 and later at 113.75.                                 

Strategy for USD/INR: USDINR payables can be covered from cost angle and exports can be covered on rally due to extended rally.

Suggested Portfolio: 1) Buy USDINR on decline with stop loss at 67.10.                      

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, durables order, weekly jobless claims EU data: PMI UK: CPI, PPI, RPI Japan: