DAILY MARKET COMMENTARY: Wednesday - February 20, 2013

The Indian Rupee opened flat at 54.17 levels after closing at similar levels on Monday. The Intraday range for the rupee is seen between 54.05 – 54.40 levels.

The rupee gained in the later session, helped by some selling of the dollar as rupee made a month low against the dollar. The RBI governor struck a hawkish note on Saturday and said there are upside risks to inflation from food and commodity prices, while calling room for monetary easing "limited in its monetary policy review on 19^th March.

The major trade unions have called for a two-day strike starting on Wednesday, as the stressed government prepares to present an austerity budget. The PSU banks will also be observing the strike which could keep the local currency rates in a very tight range.

The Asian markets are trading higher buoyed by rising global equities overnight. News of possible fresh mergers boosted U.S. Stocks on Tuesday, made the SPX to hover near a five-year high, while a stronger-than-expected rise in the German ZEW investor sentiment index to a three-year high supported European stock.

Meanwhile elections in Italy could also pose a big problem for the Euro over the next 2 weeks.  The elections are being held on February 24th and 25th Feb. The elections are close and can still go any way and the worst case for investors and the euro would be a win by Berlusconi because he plans to abolish unpopular property taxes that were the cornerstone of Monti's austerity measures.

A return to the free spending days of Berlusconi would be a big hit to confidence and would increase the risks of a downgrade for Italy and along these lines; the uncertainty surrounding the Italian elections also poses a risk for the Euro.

The Federal Reserve will be releasing the minutes from its last monetary policy meeting in January however talk of phasing out asset purchases could resurface this week and if the central bank sounds serious about starting to unwind some of its emergency stimulus which could further support the dollar.

Outlook: As suggested earlier, exporters can start initiating long term covers at 54.20 or plus levels in a phased manner. In case already booked substantially then keep stop loss of 54.10 for further bookings.. All bookings should be done long term in nature.  Importers should make the most of the correction in the market and Importers should cover on dips as and when comfortable. OVERALL: USD/INR pair still maintains bullish.

EUR/USD:  The Euro is currently trading stronger at 1.3411 levels. The Euro gained against the US Dollar on account of two major reasons. Firstly, the German ZEW Economic Sentiment data which was released yesterday came at 48.2 versus the expectation of 35.3 levels. Secondly, the Euro ZEW Sentiment came at 42.4 versus the forecasted of 35.5 which supported the Euro. On the other hand, the Italy Parliamentary Elections are due this weekend which is creating uncertainty in the region. The Support is seen at 1.3250 levels while resistance is seen at 1.3520 levels.

GBP/USD:  The British Pound is trading weaker at 1.5444 against the US Dollar which is at eight month low. One of the major reasons for the fall in pound is because of the threat of downgrade revision in its economic growth as mentioned in the recent inflation report of the BOE. On the other hand we have the unemployment data due for the day. The pair is expected to find a support near 1.5392 levels and the resistance is near 1.5691 levels.

AUD/USD: The Australian Dollar is trading at 1.0344 levels. It strengthened 0.18% post RBA meeting against the US Dollar. The latest meeting revealed that strong demand for commodities across Asia and improved global economic developments have contributed to a pickup in domestic economic activity. The minutes also indicated that policy makers believed that lower interest rates have started to boost certain parts of the economy.  The near term support is seen at 1.0237 levels while immediate resistance is at 1.0423 levels.

USD/JPY: The yen is trading flat at 93.51 levels against the US dollar. Although the Japanese economy is continuing with its devaluation in Yen, it is creating problems for the trade figures. Weak currency has pushed up its import bill resulting in a record monthly trade deficit of 1.6tn yen ($17.1bn; £11.1bn) in January. Japan’s deficit has also been impacted by an increase in fuel imports. The near term support is seen at 90.00 and resistance is at 94.90.

Gold:   The Gold is currently trading at 1608 levels. The gold is trading on a lower note driven by technical selling in the market. Technically, there is a strong support for the gold near $1590 levels, from where the prices should consolidate and rebound higher.  The near term support is seen at $1597 levels while resistance is seen at $1630 levels.

Crude oil:  The crude oil is seen trading at 97.13 levels. The crude oil prices are seen trading above $96.00 levels supported by the rise in the equity markets. In the meanwhile, the IEA (International Energy Agency) said high Brent crude oil prices are posing big risks for the global economy. They said European oil and gas import bills for 2013 will reach about 500 billion Euros ($668 billion) if oil prices remain at these levels. This means a "major problem for the European and global economy." The near term support is at 94.90 and resistance is at 98.20 levels.

Dollar Index: The US Dollar Index is trading at 80.35 levels. The US dollar index is trading lower against the majors as the Euro and Yen are seen appreciating.  The Euro was supported by the strong economic sentiment data from the Germany. However the gains in the Euro look short lived given the uncertainties in the region. Today’s release of the FOMC meeting minutes will be a key event for the US dollar.  If there is any indication over phasing out the QE3 then we will see a strong upside in the US dollar index. The Support is seen near 78.90 and resistance is at 81.20 levels.

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