FX – WEEKLY REPORT

23/06/2018

RUPEE GAINS, OPEC INCREASES OIL SUPPLY

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 gains 0.26% w/w.

-OPEC agrees to increase output by 1 mbpd.

-US President warns of more tariffs on Chinese products and EU cars.

Important developments during last week: Rupee gained 18 ps w/w (0.26%) to close at 67.83 as against 68.01 last week. Rupee declined to 68.36 and recovered as Govt vowed to maintain fiscal discipline and meet fiscal deficit target. Rupee withstood Crude price pressures and rally in USD against majors. Indian Equity indices swayed within a tight range to end the week marginally higher. Technical indicators point to an intermediate top for USDINR pair at 68.40 and correction to 67.55/67.30 and later to 66.80 is possible. With major negatives known and factored, it is difficult to extrapolate recent Rupee trend into further weakness without a relief for the pair. The pair is impacted by FPI otflows, higher trade deficit and increasing US Yields.                                                                                                                                   

FII’S have sold Rs 4844 Cr of Indian Equities in June till date . FII’S have sold 9290 Cr of Indian debt securities in June till date . On a cumulative basis, FII’S have sold Rupees 1405 Cr of Indian Equities till date for this calendar year and have sold  Rupees 40602 Cr of Indian debt in this calendar year till date.

Global developments: The week was dominated by OPEC, BOE and US President’s trade tantrums. In a surprise voting pattern,  BOE voted 6-3 to leave the Bank rate on hold at 0.5%. One more member joined to vote for rate hike this time, indicating possibility of rate hike in August. The majority preferred to stand on the sideline in June, given the softer global growth outlook and weak manufacturing output and goods exports in April. These members preferred to see more data in these areas before adopting for a rate hike. The minutes added that dissenting members saw the labor and pay settlement indicators as contain “upside risks to the expected pickup in average weekly earnings and unit wage costs”.

Markets were again thrown into a flux by latest trade tantrum from US President. He warned EU of 20% tariff on EU cars imported into US, if EU does not break entry barriers for US cars. Earlier in the week, he ordered Trade Representative  to identify USD 200B of Chinese products for additional 10% tariffs, in response to China’s retaliation on Section 301 tariffs. The Chinese Ministry of Commerce responded by vowing to fight US blackmail that deviates from the consensus reached during the trade talks in the past few months.

Despite trade threats, markets are struggling to weave a coherent narrative on trade war impact on asset markets and Currencies. It is believed that investors will prefer USD during period of uncertainity if trade war goes out of bounds.

OPEC decided to increase supply by 1 million barrell per day. However, analysts expect only 7 lac barrell addition as some countries will be unable to increase supplies. Iran and Venezuela sanctions added to supply losses last month driving prices even higher. Despite supply increase announcement, WTI and Brent crude rallied as the deal lacked specifity.

                                                                                                                                   

ECB Chief maintained a very dovish tone . In a speech, he said that monetary policy will be calibrated and called for patience, prudence and persistence. He said that though EU economy is on a growth path and inflation is moving towards its objective, durability of growth outlook is at risk.

European Commission formally announced retaliation to US steel and aluminum tariffs . The total EU exports to the US affected by the US measures is at EUR 6.4B. EU will target US products in EUR 2.8B worth first, effective from June 22 nd. Duties on the remaining EUR 3.6B in US goods will take place at a later stage.

Important developments for next week: No major events.

 

Important levels to watch for are: 1) EUR/USD: 1.15 on the downside and 1.1850/1.1960 on the upside. 2) USD/INR Supports: 67.50/67.30 on the downside and 68.40 on the upside.

                                                                                                                       

 

Market developments:

-Indian Nifty closed at 10821.

-Gold closed at 1271 and WTI Crude closed the week at USD 69.25.

-Indian 10 Year G-SEC closed the week at 7.82%. US 10 Year Yield closed at 2.90%.   

Data Highlights of last week:

-US building permits declined marginally to 1.3 mn and housing starts climbs to 1.35 mn.

-US existing home sales dipped to 5.43mn.

-US Weekly jobless claims declined to 218k, Phily Fed mfrg index declined to 19.9 and leading index climbed 0.2% m/m.

-EU Consumer confidence was reported at -1.    

-EU PMI(mfrg) was in line with consensus at 55 and PMI(services) climbed to 55.       

Technicals:

USD/INR : Spot closed above 100 and 200 day major moving averages. 20 day moving           is at 67.56. 50 day moving average is at 67.20. 200 day moving average is at 65.20. Daily MACD is in buy zone, implying bottom at 66.85 . Important support zone is at 66.85. Important resistance is at 68.40/68.90.

EURO/USD: The pair is below all major moving averages. Next Major resistance is at 1.1850 and later at 1.1960. Major support is at 1.1508. Daily MACD is in sell zone, implying an important top at 1.1850. 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 1.31 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 1.3475 and later at 1.3550. Important support is at 1.31.           

USD/YEN: The pair is above major moving averages. Daily MACD is in sell zone, implying important top at 110.92. Important support is at 108.10. Important resistance is  110.92 and later at 111.40.                                   

                       

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

                                                                                                                                   

 

Suggested Portfolio: 1) Sell USDINR on rally to 68/68.25 sl 68.45 tgt 67.30.                

                                                                                                                                                                                  

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

Currency Map:

Currency Pairs WEEKLY CLOSE PRIOR WEEK CLOSE % change
EURO/USD 1.1654 1.1610 0.37
GBP/USD 1.3264 1.3277 -0.09
USD/JPY 109.97 110.66 -0.62
USD/INR 67.83 68.01 -0.26

Data and Events for upcoming week: US Data: S&P house price index, new and pending home sales , durables order, weekly jobless claims, Core PCE index, personal income and spending EU data: GDP(final), CPI(flash), Ifo suvery, German Gfk consumer confidence UK: Gfk consumer confidence index Japan: Housing starts, industrial production, CPI and unemployment rate.

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