12/05/18

FX-Weekly-Update

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 declines to 67.45.

-Indian Equities climb higher.

-BOE is dovish, Crude wobbles on cancellation of Iran nuclear deal.

Important developments during last week: Rupee weakened 0.68% w/w to close at 67.32 as against prior week close of 66.86 . Despite RBI selling USD, Rupee weakness was unabated due to higher Crude prices and FPI outflows. IMF anf Fitch have projected strong growth for this fiscal. Though IIP and Core sector growth sagged in March, auto sales was robust and GST collection exceeded 1 lac Cr in April.

Indian IIP growth slowed to 4.4% in March as agaisnt prior month’s downwardly revised 7% growth. IIP for the last full fiscal stands at 4.3%, lower than 2016-2017 data of 4.6%. Mfrg sector grew 4.4%, mining 2.8% consumer non durables grew by 10.9%      ,consumer non durables grew by 2.9%, Capital Goods declined 1.9%.

IMF report projects Indian GDP to grow at 7.4% in this year and accelerate further to 7.8% as the economy has recovered from demonetisation and GST introduction.

Rating agency Fitch said that Indian economy is poised to grow at 7.3% in this fiscal and 7.5% in next fiscal.                       

US based Wal mart announced acquistion of flip kart for USD 16 bn, which includes new Equity infusion of USD 2 bn. Wal Mart now owns 77% of flip kart. This is the largest acquistion for Wal Mart.

FII’S sold Rs 1535 Cr of Indian Equities in May till date . FII’S also sold 6460 Cr of Indian debt securities in May . On a cumulative basis, FII’S have bought Rupees 6879 Cr of Indian Equities till date for this calendar year and have sold  Rupees 20229 Cr of Indian debt in this calendar year till date.

Expect USDINR to trade in the 66.50-67.40 range in coming weeks.

Global developments: The week was dominated by US cancellation of Iran nuclear deal and BOE’S dovish policy. Though FX market reaction was muted to Iran nuclear deal cancellation, WT 1 Oil wobbled to hit USD 72. Equities shrugged off Oil worries and climbed higher.

US inflation readings cooled off, providing a pause to USD rally. US dollar initiated a pullback as a result, interrupting the sharp rally that had been in place for much of the past three weeks.

BOE left rates and asset purchases unchanged at 0.5% and GBP 435 bn. Growth was revised lower to 1.4% for 2018 from earlier estimate of 1.8%. Inflation forecast was revised lower to 2.4% from 2.7%. BOE minutes suggested that, “although business investment is still restrained by Brexit-related uncertainties, it is being supported, like exports, by strong global demand and accommodative financial conditions. Household consumption growth remains subdued, in line with the modest growth in real income over the forecast period”.

Fed Chairman said that “Fed policy normalization has proceeded without disruption to financial markets, and market participants’ expectations for policy seem reasonably well aligned with policymakers’ expectation.”                                                                  

He also said that Fed and other advanced economies “played a relatively limited role” in the surge of capital flow to emerging markets in recent years. Hence, “there is good reason to think the normalization of monetary policies in advanced economies should continue to prove manageable for” emerging economies.”

ECB research warned of the impact of escalation of trade tensions. Based on simulations carried out by ECB staff, in event of a significant increase in protectionism, “the impact on global trade and output could be material.” In particular, if US increases tariffs “markedly” on imported goods from all trading partners that “retaliate symmetrically”, the outcome for the world economy would be “clearly negative. And, “the impact could be particularly severe in the United States”.

Chinese exports jumped 12.9%, while imports surged 21.5%. Trade surplus with US expanded to USD 22.2 bn, up from USD 15.4 bn in prior month. In this calendar year till date, Chinese trade surplus rose to USD 80.4 bn.

Important developments for next week: EU GDP and UK unemployment rate.

Important levels to watch for are: 1) EUR/USD: 1.1710 on the downside and 1.2150/1.2210 on the upside. 2) USD/INR Supports: 66.94/66.50 on the downside and 67.45 on the upside.

Market developments:

-Indian Nifty closed at 10806.

-Gold closed at 1310 and WTI Crude closed the week at USD 70.52.

-Indian 10 Year G-SEC closed the week at 7.73%. US 10 Year Yield closed at 2.97%.   

Data Highlights of last week:

-US Weekly jobless claims declined to 211k and CPI climbed 0.2% m/m, lower than expected.

-US PPI climbed 0.1% m/m.

-German factory orders declined -0.9% m/m and sentix investor confidence dipped to 19.2.

-UK industrial production climbed 0.1% m/m and manufacturing production declined -0.1% m/m.

Technicals:

USD/INR : Spot closed above 100 and 200 day major moving averages. 20 day moving           is at 66.43. 50 day moving average is at 65.58. 200 day moving average is at 64.66. Daily MACD is in buy zone, implying bottom at 64.85 . Important support zone is at 66.94 and later at 66.50. Important resistance is  at 67.45.

EURO/USD: The pair is below all major moving averages. Next Major resistance is at 1.2150 and later at 1.2210. Major support is at 1.1710. Daily MACD is in sell zone, implying an important top at 1.2415. Weekly MACD is in sell zone, implying important top at 1.2560.

GBP/USD: Trend is bearish in daily chart. Daily MACD  is in sell zone, implying important top at 1.4375 and weekly MACD is  in sell zone, implying important top at 1.4375. The pair is trading below all major moving average. Important resistance is at 1.3710 and later at 1.3965. Important support is at 1.3460 and later at 1.33.

USD/YEN:  The pair is below 200 day major moving average, but above 50 and 100 day moving averages. Daily MACD is in sell zone, implying important top at 110.05. Important support is at 108. Important resistance is  110.                                                      

Strategy for USD/INR: USDINR payables can be covered on dips to 66.50 for one/three months and exports can be covered on rally to 67.40 levels.

Suggested Portfolio: 1) Buy USDINR on decline with stop loss at 65.50.                        

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

Currency Map:

Data and Events for upcoming week: US Data: Retail sales, Ny and Phily Fed mfrg indices, Building permits, housing starts, TIC purchases and weekly jobless claims EU data: GDP, CPI(flash), industrial production and German Zew survey UK: unemployment rate Japan: CPI