FX WEEKLY UPDATE

WEEKLY SYNOPSIS: 19/11/2021

Currency Map:

Currency Pairs WEEKLY CLOSE PRIOR WEEK CLOSE % change
USD/INR 74.15 74.44 -0.38
EUR/INR 83.92 85.22 -1.52
GBP/INR 100.05 99.56 0.49
JPY/INR 64.91 65.18 -0.41

Brent Crude closed at USD 78.50 VS prior week close of USD 82.45. Gold closed at USD 1847.Nifty closed at 17764 vs prior week close of 18102. 10 Year G-SEC Yield closed at 6.37%.

Major developments: USDINR traded in the 74.02-74.53 range and closed at 74.15 as against prior week close of 75.44. Rupee gained 0.38% w/w. EUR declined 1.52% and GBP climbed 0.49% w/w against Rupee. Indian benchmark Equity index declined 1.86% w/w. 10 Year G-SEC Yield closed at 6.36%. 1 year fwd premia is at 4.67% p.a.

USDINR met with stiff selling at 74.55 levels as IPO continues to flood the system. USD buying at 74.05 stemmed further Rupee gains. On data front, IIP climbed 3.1% as low base effect waned off. Mfrg sector grew by 2.7%. Mining grew by 8.6% and capital goods sector grew by 1.3%. Consumer durables sector contracted by 2%. CPI rose marginally to 4.48% in Oct. Food inflation inched higher to 0.85%.

Technically, USDINR has strong support at 73.85. Major resistance is at 75.60. USDINR could swing between 74 and 75.60. Upside break of 74.58 could trigger Rupee decline to 75.60 levels.

In NOV, FII’S have net sold Rs 9999 cr in Cash Equity segment and have net bought Rs 5485 cr of debt. In this financial year, FII’S have net sold Rs 14593 Cr worth of Indian Equities and have bought Rs 23057 Cr worth of Indian debt. In 2020-21 financial Year, FII’S nett bought Rs 2,74,203 Cr of Equities and have sold Rs  42820 Cr in debt.

Global developments:

EUR/USD declined to 1.1280 and Oil prices declined steeply. Oil prices fell as US and Japan announced intent to release Oil form reserves to stem prices. Dovish comments from ECB Chief and return of lock downs in parts of Euro pressured Euro further. ECB President Christine Lagarde said that the central bank focus on “medium term, not on current inflation numbers”. “When inflation pressure is expected to fade – as is the case today – it does not make sense to react by tightening policy,” she added. “The tightening would not affect the economy until after the shock has already passed.”

Eurozone GDP grew 2.2% qoq in Q3, 3.7% yoy. Employment grew 0.9% qoq, 2.0% yoy. EU GDP grew 2.1% qoq, 3.9% yoy. Employment grew 0.9% qoq, 2.1% yoy. US retail sales was also stronger than expected.

US retail sales was stronger than expected. President Biden signed the Infrastructure Investment and Jobs Act (IIJA) into law. The legislation will channel $550 billion in new spending on transportation and other critical infrastructure. This type of spending tends to carry high economic multipliers, resulting in a larger economic impact than the initial dollar amount spent. And, by raising the stock of productive capital, it may even raise the potential growth rate of the American economy.

Currency range forecast: USDINR: 73.90(support)-74.60/75.65(Resistance), EURINR: 82.50(support), 84.30/85.50(Resistance), GBPINR: 98(support), 101.50/102.30- Resistance, JPYINR: 64-66.   

Suggestion: Cover USD import payables on dips to 74.05/73.90. Receivables can be monitored and hedging can be initiated at 75.50+. EURINR receivables can be hedged closer to 84.50+. GBPINR receivables hedging can be done at around 101.50+

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