FX WEEKLY UPDATE

 

UNION BUDGET, FED DECISION, BREXIT PLAN AWAITED

 

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 direction to be decided by Fiscal deficit, Fed message and Crude prices.

-Union budget, Fed rate decision, Brexit plans are key events for coming week.

Important developments during last week:           Rupee closed at 71.17 as against prior week close of 71.19. Rupee has slumped two Rupees in one month on climbing crude prices and fear of higher than estimated fiscal deficit. Budget is to be presented on Feb 1 st. Due to likely tax reliefs and agri funding related issues, deficit could be around 3.5% for this fiscal with a commitment to bring it down to 3.3% next year. Rating agencies could be uncomfortable with higher deficit figures. Rupee movement will be decided by fiscal deficit number and further movement in Crude prices. Fed’s decision on US rate curve and dovish talk and balance sheet shrinkage will have a positive counter balancing impact to a potentially negative impact due to higher fiscal deficit figure. Indian Equity markets traded in a narrow range as Q3 results are mixed till now. While Reliance, L&T, IT companies beat or met expectations, ITC and Maruti disappointed. Pvt banks like HDFC maintained earnings growth momentum. PSU banks like Indian bank announced disappointing results.                                                               

 

FII’S have sold Rs 3875 Cr of Indian Equities in Jan till date . FII’S have sold Rs 2244 Cr of Indian debt securities in Jan till date .

Global developments: Global Equities rallied, USD slumped and Pound climbed steeply on Friday even as economic news was not good. US President ended the Govt shutdown with a threat to reimpose it if there is no deal on wall funding by Feb 15 th. EU PMI slumped to near stagnation and reinforced ECB Chief’s view that economic risks are to downside and caution will be exercised on first rate hike and its timing. USD fell late Friday on reports that Fed may stop shrinking balance sheet. US Fed is meeting on Jan 30 th and Fed Chairman will be holding a press conference. Dovish message from Fed could drag USD lower. There seems to be progress in US- China trade talks as it is in the interest of China to resolve it at the earliest due to significant economic slowdown.

Pound rallied despite uncertaintity over Brexit deal.

ECB maintained status quo, but shifted its economic assessment to the downside, as warranted by decline in PMI’S. However recession is unlikely due to favourable financial conditions, lower energy prices as well as the strong labour market developments supporting domestic demand. Euro rate hike is expected only in H2 2020. Hence, the near term outlook for Euro will be guided by US-China trade deal. If trade deal is done, Euro could move from 1.14 to 1.20.

IMF lowered Global economic growth to 3.5% for 2019, citing Chinese slow down, Brexit uncertainity, trade tensions and possible tightening of financial conditions. Indian GDP is likely to grow by 7.5%, US by 2.5%, EU by 1.6%, Japan by 1.1% and China by 6.2%.

Chinese GDP growth slowed to 6.4% yoy in Q4, down from 6.5% yoy and matched expectation. For the whole year of 2018, growth slowed to 6.6%, lowest in 28 years since 1990.

 

Retail sales grew 8.2% yoy, up from 8.1% yoy and beat expectation of 8.1% yoy. Industrial production rose 5.7% yoy, up fro 5.4% and beat expectation of 5.3% yoy. Fixed assets investment grew 5.9% yoy, unchanged from November, but missed expectation of 6.0%.

BOJ left monetary policy unchanged, but was optimistic on growth. BOJ says that Japan is projected to grow at 1% in 2019, though trade friction between US and China warrants caution to this outlook.

Important developments for next week: Indian budget, FOMC meeting, US employment and EU CPI data.

Important levels to watch for are: 1) EUR/USD: 1.1270 on the downside and 1.1580 on the upside. 2) USD/INR Supports: 70.50 on the downside and 71.50 on the upside.

Market developments:

-Indian Nifty closed at 10780.

-Gold closed at 1302 and WTI Crude closed the week at USD 53.53.

-Indian 10 Year G-SEC closed the week at 7.33%. US 10 Year Yield closed at 2.75%.   

Data Highlights of last week:

-US existing home sales dipped to 4.99 m.

-US weekly jobless claims declined to 199k.

-EU PMI(mfrg) was reported at 50.5 and PMI(services) was reported at 50.8.

-EU Zew survey declined to -20.9 while German Zew survey improved to -15.9.

-EU consumer confidence dipped to -8.

-German Ifo declined to 99.1.

-UK unemployment rate declined to 4% and claimant count change dipped to 20.8k.  

 

Technicals: USD/INR : Spot closed above 20,50 and 200 day moving averages but still below 100 day major moving average. 20 day moving average   is at 70.61. 50 day moving average is at 70.77. 200 day moving average is at 69.60. Daily MACD is in buy zone, implying bottom at 69.20. Important support zone is at 70.50 and later at 70.10.

EURO/USD: The pair is below 200 day moving average. Next Major resistance is at 1.1570 and later at 1.17. Major support is at 1.1265/1.12. Daily MACD is in sell zone, implying an important top at 1.1572. Weekly MACD is in buy zone, implying important bottom at 1.1215.

GBP/USD: The pair is bullish and above all moving averages.Daily MACD  is in buy zone, implying important bottom at 1.2440 and weekly MACD is  in buy zone, implying important bottom at 1.2440. Important resistance is at 1.33. Important support is at 1.29 and later at 1.28.

USD/YEN: The pair is below major moving averages. Daily MACD is in buy zone, implying important bottom at 105. Next important resistance is at 111/112.

Suggested Portfolio: 1) Buy USDINR if 71.50 is decisively crossed.        

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

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
EUR/USD 1.1415 1.1363 0.45
GBP/USD 1.3202 1.2875 2.53
USD/JPY 109.54 109.78 -0.21
USD/INR 71.17 71.19

            

Data and Events for upcoming week: US Data: Consumer confidence, House price index, weekly jobless claims, pending home sales, personal income, spending, Core PCE index, ISM(mfrg),Nonfarm payrolls, ADP employment report and Chicago PMI EU data: Gfk consumer confidence, unemployment rate, GDP(flash), CPI and German retail sales UK: PMI(mfrg) Japan: Retail sales and housing starts.

 

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