DAILY MARKET REPORT: Friday - January 18, 2013

The Indian Rupee opened at 54.10 levels after closing yesterday at 54.39 levels. The Intraday range for the rupee is expected between 54.10 - 54.50 levels.

The Indian rupee strengthened to its highest level in more than a month as the government's move to partially deregulate diesel prices enhanced hopes that the widening fiscal deficit would be controlled.  The State-run Indian oil marketing companies can now raise diesel prices in line with increases in global crude oil prices.

The Reserve Bank of India has called on the government to reduce its fiscal deficit, which drives government borrowing and keeps upward pressure on interest rates. The central bank meets on January 29 to set monetary policy and has signaled that it is likely to cut interest rates in its last policy review.

The Asian markets are trading positive after economic reports in the world’s two largest economies best estimates. The Chinese GDP rose 7.9% in the fourth quarter from a year earlier.

The latest round of economic reports confirms that the U.S. economy is gradually improving. The Jobless claims dropped to 335K last week to its lowest level in 5 years. The hosing starts jumped 12.1% to a four year high of 954k. Unfortunately one area of the U.S. economy is deteriorating and it’s the manufacturing sector. The Philadelphia Fed manufacturing index dropped to -5.8 from 4.6. The up-coming FOMC meet on 25^th Jan, will make the market cautious of the FED stance on ending QE3.

With no major news from Euro Zone, the EURUSD is trading near its 10 month highs.  The successful bond auction in Spain was also seen supporting the pair.

The US 10 year Treasury yield is trading higher at 1.88%. The Indian Federal bond yield closed at 7.84%.

OUTLOOK: Rupee is seen consolidating from last few days between 54 – 55 levels ; exporters wait for better levels to cover as they were already asked to cover at 55 plus levels. The Importers should make the most of the dips coming in the market, they were asked to cover around 54.20 – 54.40 levels. OVERALL: USD/INR: BULLISH

EURUSD: The Euro is trading lower at 1.3370 levels against the US dollar.  The Euro is trading on a higher note against the US dollar despite the encouraging US data on housing and jobs. The gains in the Euro were attributed to the positive comments by the ECB leaders as well as strong response to the Spanish bond auction.  The European Central Bank and European Union President Herman Van Rompuy commented that the Euro area is expected to return to growth in 2013. In the meanwhile, Spain was able to successfully sell nearly $6 billion in bonds, a sign that investors have confidence in the country’s finances. These events helped Euro to hold on to its gains.  Support is at 1.3240 and resistance is at 1.3495.

GBP/USD:  The Pound is trading weaker at 1.5973 levels against the US Dollar. The pound erased its gains and was trading below its one month low against the US dollar. Sentiment on the pound remained vulnerable after the recent data signaled a contraction in the services sector in December, which fueled concerns over a triple-dip recession. Very recently, the Fitch ratings agency had warned that the UK's top-notch sovereign credit rating could be cut if the debt levels continue to rise.The pair is expected to find a support near 1.5820 levels and the resistance is near 1.6180 levels. Overall in a range with bearish bias.

USDJPY: The Yen is trading at 89.81 levels.  The Japanese yen is catching pace in its depreciation. The yen reached its weakest level against dollar since June 23, 2010 touching 90.13 yesterday. It was impacted by news from BOJ announcing an open-ended program of asset purchases until the inflation figures reach 2.0%. Support is at 86.85 and resistance is at 91.10.

AUD/USD: Australian dollar is trading at 1.0515 levels against the US Dollar. The AUD has been trading lower since last couple of sessions after the Unemployment data showed a rise in the month of December. However, it recovered slightly against the US dollar after the release of better than expected Chinese GDP figures.  China's economy grew 7.9 percent in the fourth quarter from a year earlier with a bounce that snapped seven straight quarters of slowing expansion.  Near term support is seen at 1.0450 levels while immediate resistance is at 1.0627 levels. 

Gold:  The Gold is trading at $1688 levels. Gold prices continued their uptrend as the Chinese Q4 GDP curbed the outlook for additional stimulus. However the gains in the yellow metal remain restricted as US posted a better than expected unemployment claims and housing data yesterday.  The near term support is seen at $1675 levels whereas resistance is seen at $1695 levels.

Crude oil: The crude is currently trading at 93.99 levels. The crude oil is trading near its four month high. Improving jobs outlook and optimism about the U.S. economy boosted oil to the highest level since September. Chinese robust GDP growth also supported the crude prices as China is the biggest consumer of oil.  Support is near 92.80 and resistance is at 95.80 levels.

Dollar Index: The US dollar index has recovered modestly and trading at 79.71 levels.   The US dollar index recovered from yesterday’s losses after the report showed that the unemployment claims came at 335k v/s the forecasted of 369k. Secondly, the number of new residential building began construction also supported the US markets and Dollar Index. Looking further today, we have consumer sentiment figures due for the day which could decide the course of action for dollar index. However the drop in the Philly fed manufacturing index to -5.8 from 4.6 indicated that the manufacturing sector is losing momentum. Support is near 78.99 and resistance is at 80.67 levels.

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