DAILY MARKET COMMENTARY: Monday - January 28, 2013

The Indian rupee opened the day at 53.80 levels after closing at 53.67 levels on Thursday. It is expected to trade in the range of 53.80-54.10 levels.

On Thursday, the rupee was seen weakening slightly on account of strong dollar index and the Indian benchmark indices which closed on a negative note. However later it started appreciating after the RBI announced a hike in the investment limit for FII’s in the debt market.

The central bank hiked the limits in government securities (G-secs) and corporate bonds by $5 billion each, taking the total cap in domestic debt to $75 billion, with a view to bridge the current account deficit (CAD).  It has further eased it by removing the three-year lock-in period for foreign institutional investors (FIIs) purchasing government securities (G-Secs) for the first time.

Although, the Government and the RBI are taking measures to curb the deficit and attract more foreign flows, the economy is still seen fighting with its fundamental base. The sticky inflation, the widening trade gap and the slowing growth will remain the concern areas for the government.

The global economic crisis is seen hitting emerging and developing nations like India. This is quite evident from the recent data which shows the FDI into the services sector declined by about 14 per cent to USD 3.63 billion during the April-November period this fiscal.  Service sector contributes over 50 % to India’s GDP.

Some of the major euro zone banks are expected to repay more than 130 billion Euros of crisis loans to the European Central Bank next week. This can be a signal that the financial system is returning to health. However, the international bankers and finance ministers are of different opinion as they warned on Saturday that Europe's crisis was not yet over and it will take years to overcome the economic depression.

The US 10 year treasury yields are trading higher at 1.94%.

Outlook: Exporters wait for initiating covers till we see significant recovery in US dollar till 54 levels at least.  Importers should cover on dips as and when comfortable and keep stop loss of 54.10 on worst case in case unable to cover below 54.00 levels. There is a very strong support close to 53.20 levels which will be difficult to break. OVERALL: USD/INR pair still maintains bullish but since rupee is slightly strong in short term on local news hence one should buy the pair on dips.

EUR/USD:  The Euro is trading at 1.3454 levels against the US dollar. The German IFO index overpowered market expectations sending EUR/USD to fresh 11-month high against the dollar. IFO printed at 104.2 versus 103.00 forecast. The positive reading comes on the heels of much better than expected results from the ZEW survey earlier in the week and stronger flash PMI data out of Germany indicating that the economic climate in EZ is improving. Further euro might be seen appreciating as euro zone banks will be repaying the crisis loans worth $1.33 trillion to the European Central Bank. The near term support is at 1.3250 and resistance is at 1.3550.

GBP/USD: The British Pound fell to four months low against the US Dollar and is trading at 1.5758 levels. The UK economy contracted by 0.3% in the fourth quarter which was weaker than the economists’ expectations of -0.1%. According the GDP report the manufacturing sector has been hit the most with industrial production down by 1.8%. As mentioned in the earlier report, rough winter and heavy snow have affected the retail sales in last quarter.  The pair is expected to find a support near 1.5602 levels and the resistance is near 1.5893 levels. 

AUD/USD: Australian dollar is trading at 1.0424 levels against the US Dollar. The sell - off was tipped by weaker Australian consumer price growth. The Australian Dollar recovered today marginally after 3 days of fall on account of expectations of a strong Manufacturing PMI number from China. The near term support is seen at 1.0388 levels while immediate resistance is at 1.0485 levels. 

USD/JPY:  The Yen is seen depreciating at 91.12 levels.  The yen tumbled against the US dollar to hit a 2 ½ year low. The yen depreciated on expectations that the new Prime Minister, Shinzo Abe, will force the central bank to ease monetary policy to combat deflation. Shirakawa admitted that achieving their 2% inflation target won't be easy but they aim to do it as soon as possible.  The near term support is seen at 88.00 and resistance is at 92.80.

Gold:  Gold is trading at $1659 levels. Gold is taking a downward turn and witnessed a weekly decline as investors preferred to resort to shares rather than gold to benefit from its rally. India has told Thailand that it will impose six-10 per cent duty on jewellery imports in the proposed free trade agreement. The near term support is seen at $ 1678 levels whereas resistance is seen at $ 1698 levels.

Crude oil:  The crude oil is currently trading at 95.96 levels. The near term support is at 94.00 and resistance is at 97.00 levels.

Dollar Index: The US Dollar Index is trading at 79.82 levels. The US dollar index is seen holding well above 79.60 levels, despite the stronger than expected data from Euro zone, which lifted euro up. The US home sales data disappointed in the last week. The sale of new homes dropped to 369k from 398k in the last month, indicating the U.S. housing will take time to rebound. In the meanwhile, the sharp decline in jobless claims this month has led many investors to hope for stronger payroll growth. The Support is near 78.99 and resistance is at 80.67 levels.

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