DAILY MARKET COMMENTARY: Friday - February 8, 2013

The Indian Rupee opened at 53.46 levels after closing yesterday 53.12 levels. The Intraday range for the rupee is seen between 53.30 – 53.55 levels.

The Indian rupee weakened yesterday after a government projection estimated economic growth in the fiscal year will be worse than expected, raising concerns about how it would fund its fiscal and current account deficits.

The government said the country's slowest growth in a decade could be much worse than earlier projections. Preliminary data released on Thursday showed the economy set to have grown 5% in the fiscal year ending next month, underscoring the urgent need for reforms to boost growth.

The government's divestment agenda, NTPC, had a successful offer for sale. The offer was subscribed 1.69 times.  This boosts the government's total earnings from divestment to over Rs 20,000 crore.

We can say that India is lucky to get the huge quantum of flows in spite of the slow growth. All credit should be give to the Federal Reserve, European Central Bank, Bank of Japan who is easing their balance sheets. India has received Rs. 25,519 crore in January 2013 lower as compared to Rs. 25,915 crore in 2012.

The Asian markets are trading lower after European Central Bank President Mario Draghi noted risks still facing the euro zone economy, turning investor sentiment more cautious. The ECB kept interest rates at a record low 0.75%. Draghi said the ECB will monitor the economic impact of a strengthening euro, feeding expectations the currency's climb could open the door to an interest rate cut. The exchange rate was not a policy target but is important for growth and price stability.

The US 10 year Treasury yield dropped to 1.95%%. The Indian federal 10 year bond yield closed 3 bps lower at 7.88% then the previous close of 7.91%.

Outlook: As suggested earlier, exporter should wait to initiate exports covers till 53.60-80 levels atleast. In case they cover they should only look at long term covers over 9-12 months where premiums are almost all time high. Importers should make the most of the correction in the market and Importers should cover on dips as and when comfortable and keep stop a loss of 53.50 levels maximum. OVERALL: USD/INR pair still maintains bullish.

EUR/USD:  The Euro is trading lower at 1.3408 levels against the US dollar. The Euro saw a slide after the ECB presented its negative outlook on the euro and economic growth of Euro zone. The ECB showed its concerns over the recent euro appreciation which would hamper the growth of the economy. The ECB expects a slowdown in the economy for the current year before gaining momentum in 2014.  Also the Spain’s bond auction which was not as successful led to the losses in euro.  The near term support is at 1.3308 and resistance is at 1.3680.

GBP/USD: The British Pound fell to its five month low against US Dollar. Currently, the British Pound is trading at 1.5720 against the US Dollar. The Sterling recovered marginally after the Bank of England meeting, wherein they have made no changes with Asset purchase program and Official Bank Rate. Adding to the gain in Pound was the manufacturing Production which came at 1.6% versus 0.7%.  The pair is expected to find a support near 1.5624 levels and the resistance is near 1.5845 levels.

AUD/USD: The Australian Dollar currently is trading weaker at 1.0289 levels. The commodity currency fell drastically to record low of four months due to reduced GDP and Inflation forecast by the Reserve Bank of Australia. The forecast was reduced on account of shrinking investments in the mining sector. The Australian Dollar recovered marginally in the morning session on account of better than expected China’s trade balance. The near term support is seen at 1.0237 levels while immediate resistance is at 1.0423 levels.

USD/JPY:  The Yen is trading on a firm note at 93.53 levels. Yesterday there were series of announcements from the Japanese officials. The potential candidates for next BOJ governor are Toshiro Muto, Kazumasa Iwata and Haruhiko Kuroda. The appointment of the chief will indicate whether Japan will continue its monetary easing plan or will see a pause. On the data front, current account deficit has narrowed which signals the slight recover in the economy. The near term support is seen at 90.00 and resistance is at 94.90.

Gold:  Gold was trading at $1671 per ounce. The gold is trading on a lacklustre note. The RBI is trying to curb the deficit by imposing import duty on gold, which is putting pressure on the gold prices. Also the strong gains in the dollar index are limiting the upside in gold. The near term support is at $ 1662 levels whereas resistance is seen at $ 1683 levels.

Crude oil:  The crude oil is seen trading at 96.06 levels. The crude oil prices rose above $96 levels after China, the biggest consumer of oil posted a strong trade surplus data.  The recent study shows that China’s dependence on foreign Crude Oil in Y 2012 reached 56.6%, a Y-Y rise of 1.5 percentage points. This indicates that in the coming years its demand for crude will increase and any positive or negative data from the country will have impact on the energy prices.   The near term support is at 95.60 and resistance is at 98.50 levels.

Dollar Index: The US Dollar Index is trading higher at 80.14 levels. The US dollar index was supported by the pessimistic comments by the ECB and BOE chiefs yesterday. Mari Draghi (ECB) said he is worried about the latest strength in the Euro and he added that the price stability remains a priority for him. These comments made the Euro to tumble towards the levels of $1.3370. Also the jobs data from the US provided additional support to the US dollar index. The US unemployment claims fell to 366k from 371k in the last week.  The Support is seen near 78.90 and resistance is at 80.87 levels.

(Source: Corporate Communications, India Forex Advisors Pvt Ltd )