Currency Map:


Brent Crude closed at USD 91.45 VS prior week close of USD 98.45. Gold closed at USD 1650. Nifty closed at 17185 vs prior week close of 17314. 10 Year G-SEC Yield closed at 7.47%.

Major developments: USDINR traded in the 82.15-82.69 range last week and closed at 82.36 almost unchanged as against prior week close of 82.33. EUR climbed 0.17% w/w and GBP climbed 1.77% w/w against Rupee. Indian benchmark Equity index declined 0.74% w/w. 10 Year G-SEC Yield closed at 7.47%. 1-year fwd premia is at 2.58% p.a. FX reserves stands at USD 532.87 bn . FX reserves has declined from its all time high of USD 650 bn.

Rupee’s decline to 82.67 was met with RBI intervention. With USD index also correcting lower, Rupee retraced to 82.15. Crude had wild swing between USD 88 and USD 98. With crude retracing back, Rupee consolidated below 82.40 in last few sessions. FII’S continued to sell again after last two months of buying. With Global Equity markets witnessing volatility with strong declining bias, FII flow support is not expected.

Indian Sept inflation climbed 7.41% as against Aug inflation data of 7%. Food inflation spiked to 8.60%. IIP contracted -0.8% in Aug. Apr-Aug IIP has climbed 7.7% y/y. Mfrg contracted -0.7% in Aug. IMF predicts Indian GDP to grow by 6.1% as against RBI estimate of 7%.

USDINR’s resistance is at 82.70/83.35. Support is at 81.95. The pair could move higher with strong support above 81.95.

Global developments: Equity markets were rocked by higher-than-expected US inflation. Headline and Core inflation were higher, implying that Fed has a long way still to get on top of the inflation curve. US headline CPI printed at 0.4% month-over-month and 8.2% year-over-year while the “Core” CPI reading came in at 0.6% m/m and 6.6% y/y.

FOMC minutes highlighted policymakers’ concern on persistent inflation, and the cost of doing too little. Fed fund futures are now pricing in 97.2% chance of 75bps hike to 3.75-4.00%. US indices did a u-turn on Thursday, only to give up corrective gains. Crude also declined on Friday.

Markets are fully pricing 75 bps rate hike in Nov 2 nd meeting. The monetary policy-sensitive 2-year Treasury yield has spiked nearly 20bps to test 4.50%, its highest level in 15 years. US markets recovery post inflation data was short lived. US retail sales also remained robust, indicating strong demand.

Crude retraced from USD 98 to USD 91.

Sterling recovered as UK PM did a u-turn on her mini budget. She replaced Chancellor and he is expected to deliver new proposals by Oct end. UK PM Truss’s initial budget of tax cut, energy bill freeze and spending program was met with steep sell off in Pound and implosion in Gilt. BOE stepped in to buy bonds and stabilize Yield. Since then Pound has recovered, but remains very volatile.

Earnings season is about to kick into high gear.  As noted, banks began releasing earnings last week.  JPM and WFC beat solidly.  This week, markets will see Bank of America and Goldman Sachs.  In addition, big tech begins reporting this week. These names include Netflix, Tesla, and IBM, among others. 

Focus is on EU and UK CPI data.

Currency technical levels: USDINR: 81.90 (Supports), 83.35 (resistance), EURINR: 81.45(Resistance), 79.15/78.75/77.75 (Support), GBPINR:  93.60(Resistance). JPYINR: 57.50 (resistance) /55.50 (support).

Hedging advise: USDINR Imports can be hedged on decline to 81.90. EURINR receivables be hedged.  GBP Exports be hedged.

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