DAILY MARKET COMMENTARY: Monday - February 5, 2013

The Indian Rupee opened at 53.39 levels after closing yesterday at 53.28 levels. The Intraday range for the rupee is seen between 53.20-53.55 levels.

After the series of measures taken by the Central government to curb the bolstered fiscal deficit, the Fitch Rating agency said that the efforts are encouraging signals that the authorities want to maintain the momentum towards fiscal consolidation and structural reform generated since last summer.

Never the less, India's the inconsistent performance on policy implementation and the approach of elections in 2014 could impede fiscal consolidation, suggesting political and implementation risk remain significant. The Union budget, due at end-February, will be an important test of the government's commitment to fiscal consolidation and reform in general. However, it is not the sole rating driver. A credible medium-term fiscal consolidation plan remains key.

Indian economy is expected to grow 5.6% in the current fiscal, lower than 5.9% projected earlier but will be higher in 2013-14, as per National Council of Applied Economic Research (NCAER). This is mainly due to contraction of output in all three sectors -agriculture, industry and services. The manufacturing sector alone, in the first half of 2012-13 declined steeply to 0.49%, which is a record decline and acts as a severe pull-down factor for the growth of GDP, the report said.

The HSBC Markit manufacturing Purchasing Managers' Index (PMI) fell to 53.2 in January, after surging to a six-month high of 54.7 in December. The new export orders sub-index slipped to 54.6 in January, showing the slowest pace of growth since October. While on the other hand, India’s service industries expanded at a faster pace in December. The purchasing managers’ index rose to 55.6 from 52.1 in November

The Asian equity markets are trading lower as Euro Zone takes the lime light with increasing worries that a potential political shake-up could disrupt the euro zone’s efforts to overcome its debt crisis. The Spain's opposition party called for Prime Minister Mariano Rajoy to resign over a corruption scandal, an allegation Rajoy denies.

The US 10 year treasury yield dropped below 2%, at 1.97%. The Indian federal 10 year bond yield closed 3 bps higher at 7.94% as compared to its previous closing.

Outlook: As suggested earlier, exporter should wait to initiate exports covers. 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 at 1.3494 levels against the US dollar. The Euro faced with bad news yesterday causing a concern over the growth of the Euro zone. The major drivers for euro to take a slip were downbeat data from Spain and the political instability. Spain’s unemployment rose in the January to 132k and country’s Prime Minister Mariano Rajoy is facing an allegation of corruption prompting him to resign from its post.  Spanish bonds fell yesterday sending the 10-year yield up to 5.44 percent. The European Central Bank has a monetary policy meeting this week which will be watched closely for further cues.  The near term support is at 1.3400 and resistance is at 1.3700.

GBP/USD: The British Pound recovered against the euro after a sharp fall in past one month. Currently, the British Pound is trading at 1.5754 against the US Dollar. Despite negative cues from the construction PMI from Britain, it recovered on account of political instability in Spain which led to a downfall in Euro. On the data front, we have UK Service PMI figures due for the day. The pair is expected to find a support near 1.5672 levels and the resistance is near 1.5943 levels. 

AUD/USD: Australian dollar is trading at 1.0440 levels against the US Dollar. The Commodity currency recovered marginally on account of better than expected trade balance figures  which came at -0.43bn versus the -0.81bn. This is the first time since October that the trade balance has reduced. The near term support is seen at 1.0388 levels while immediate resistance is at 1.0485 levels.

USD/JPY:   The Yen is trading at 92.33 levels. The yen has depreciated 16 percent over the past three months against the US dollar. The speed at which it has depreciated, it is expected to give a slight correction. There are no major economic data lined up for the yen. However, china’s HSBC non-manufacturing report can be taken into consideration for further movement in the yen. The near term support is seen at 90.00 and resistance is at 94.90.

Gold:  Gold is trading at $1674 per ounce. The gold prices are seen trading flat amid mixed trading in the commodity currencies like AUD and CAD.  The near term support is at $ 1650 levels whereas resistance is seen at $ 1690 levels.

Crude Oil: The crude oil is currently trading at 96.02 levels. The crude oil prices fell below its one week low taking cues from the recovery in the dollar index above 79.50 levels.  The oil traders are looking ahead to Chinese economic data due later this week as the country is the world's second-largest oil consumer. The recent data showed that 56% of China’s consumption demand is fulfilled by the imports from foreign countries. The fast growth of the country's automobile industry is the major factor driving up the crude oil consumption in the country. The near term support is at 95.50 and resistance is at 98.50 levels.

DI: The dollar index is trading at 79.62 levels. The US dollar index has recovered above 79.50 levels after the Euro tumbled yesterday. The US dollar has been giving an inconsistent performance since last few days. It traded higher against the Euro, Yen and Canadian dollar but lost against the Australian dollar and pound. The absence of meaningful economic data was the one more reason behind the directionless US dollar. For the day, Non-manufacturing ISM is due for release which will be closely watched after a strong rebound witnessed in the manufacturing activity in the last week.  The Support is near 78.99 and resistance is at 80.67 levels.

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