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Brent Crude closed at USD 86.10 VS prior week close of USD 87.55. Gold closed at USD 1928. Nifty closed at 17604 vs Nov close of 18027. 10 Year G-SEC Yield closed at 7.38%.

Major developments: USDINR traded in the 80.89-81.76 range last week and closed at 81.54 gain of 32 ps for USD as against prior week close of 81.22. EUR climbed 0.76% w/w and GBP climbed 0.42% w/w against Rupee. Indian benchmark Equity index declined 2.34% w/w. 10 Year G-SEC Yield closed at 7.38%. 1-year fwd premia is at 2.35% p.a.

There were no major data impacting USDINR pair last week. Rupee declined from below 81 to 81.76 on RBI interventionUnion Budget on Feb 1 st and RBI policy meet on Feb 6 th are likely to set the trend for Equity and Rupee markets in coming weeks. Indian Equities are under heavy selling pressure due to steep decline in Adani group stocks.

In Jan, FII’S have sold Rs 13423 Cr of Equities till date and have bought Rs 2555 Cr of debt till date. In last Calendar Year, FII’S sold close to Rs 1.06 lac Cr worth of Equities.

USDINR’s supports are at 80.90/80.50/80. 200 day average is at 80. Expect Rupee to trade in the 80-82 range with 20 and 50 day averages now at around 82.

Global developments: USD’S decline against majors slowed. USD’S declining momentum is fading against Euro and GBP.

US GDP grew by 2.9% annualized (q/q) in Q4 , above expectation of 2.6%. GDP grew by 2.1% y/y. Consumer spending grew by 2.1% – a modest deceleration from the 2.3% recorded in Q3. Residential investment (-26.7%) showed another steep contraction in Q4, as both residential construction and sales activity continued to slow under the weight of higher interest rates.

Economic growth was boosted by inventory adjustment. Domestic sales activity index rose on;y by 0.2% q/q,( annualized). This was a sharp deceleration from Q3’s gain of 1.1% and was weighed down by both softening business investment and another outsized decline in residential investment. GDP growth in Q1 2023 is expected to be around 1% (annualized).

Solid durables data supported risk sentiment.

US PCE price index rose 0.1% mom while core PCE price index (excluding food and energy) rose 0.3% mom. From the same month one year ago, the PCE price index slowed from 5.5% yoy to 5.0% yoy. Excluding food and energy, core PCE price index slowed from 4.7% yoy to 4.4% yoy.

Slowing Core PCE inflation may help Fed to slow down rate hikes.

EU PMI Composite rose from 49.3 to 50.2, a 7-month high. UK PMI Composite dropped from 49.0 to 47.8, a 24-month low too.

Euro climbed past 1.09 on hawkish messages from ECB officials. ECB Governing Council member said “there are grounds for significant increases” in the key interest rate in the winter and early spring. Euro could climb to 1.1050/1.11 soon.

In Japan, Tokyo CPI core (all items ex-fresh food), accelerated from 4.0% yoy to 4.3% yoy in January, above expectation of 4.2% yoy. That’s also the fastest annual increase in nearly 42 years since May 1981.

Fed, ECB and BOE meetings along with ISM, PMI surveys and US employment data are key events for the coming week. While Fed is expected to slow rate hikes to 25 bps, ECB and BOE are expected to deliver 50 bps rate hikes.

USD is also impacted by the liquidity injected by US Treasury from its buffer due to debt ceiling stand off in US Congress. This is offsetting Fed’s Quantitative tightening.

US ISM surveys and employment data are other important events. Labor market remains tight despite lay offs. Lay offs in tech sector have not shown up in hard data yet. Fed may still be worried over tight labor market and easy financial conditions. Inflation is cooling, but Fed may worry that tight labor market may again impact inflation.

Finally,  the corporate earnings season will kick into top gear next week with tech juggernauts like Apple, Google, Amazon, Meta, and many other household names releasing their quarterly results.

Events to focus: Union budget, FOMC, ECB, BOE rate decisions and US ISM, employment data.

Currency technical levels: USDINR: 81.42/81.24/80.90 (Supports), 81.76/81.90 (resistance), EURINR: 89.45(Resistance), 86.70/85.55 (Support), GBPINR:  98(Support)/ 102.60 (Resistance). JPYINR: 64 (resistance) /61.30/60 (support).

Hedging advise: USDINR Exports can be hedged on rally to 81.75/81.90. USD Imports can be covered on decline to 80.90.

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