Daily Market Report: Monday- October 29, 2012

The Indian Rupee opened at 53.85 levels after closing at 53.56 levels on Thursday. The Indian Rupee has given up around 2.8% against the US Dollar since the beginning of October 2012. The intraday range for the rupee is expected between 53.75-54.00 levels.

The RBI policy review meet on the 30th of October 2012 has a divided market on expectations from the policy. There are expectations of a 25bps rate cut and there are expectations of a 25bps CRR cut. A small section of the market is expecting a 50bps rate cut. What will the RBI deliver to the markets?

The RBI will take both domestic and global factors into consideration when taking a policy decision on the 30th of October. Slowing monetary aggregates, tight liquidity conditions and clear signs of weakening global economy do call for rate cuts. The only factor that is going against rate cuts is inflation. Inflation as measured by the WPI, which came in at 7.81% for the month of September 2012, highest in 2012. The RBI has continuously reflected its stance of inflation and gives it priority over growth. We expect them to hold the interest rate with a 25 bps CRR Cut.

The Asian markets are trading mixed erasing its initial gains seen after the U.S. economy expanded more than economist's expectation. The U.S. economy expanded by 2.0% in the third quarter compared to a forecast for growth of 1.8%.

Concern still continues to persist over Euro Zone, with consumer confidence in France declining, business confidence in Italy moving lower and unemployment reaching record highs in Spain, investors are starting to realize that with or without a bailout for Spain, the Euro zone is deep in recession and won't be rising out of it anytime soon. The Troika's talks with Greek however aren't going as well with politicians gridlocked over labor reform.

In spite of the positive US GDP figures riskier assets failed to rally, the US 10 year treasury yield fell from 1.80% to 1.74% reflecting risk aversion still persisting the global markets.

Outlook: Exporters can sell above 53.60 levels only for long term partially (8-12 months only). Rupee is expected to be in the range of 52.50 - 54 levels for 20-25 days. Uncovered Importers cover on dips near 53.10-53.40 for Nov (50%) and Dec (30-40%) at least and average out on better levels. Importers are suggested to cover wherever costing is met. Break of 54.30 on the upside would be crucial and important level to watch for USD/INR which will confirm that the fall to 51.40 was merely a short term correction.

EURUSD: The EUR/USD is currently trading lower at 1.2934 levels. The Consumers Confidence in Germany on the other hand grew more optimistic in the month of November. The gap between how Germany and the rest of Europe has been performing is widening alongside the spread between German, Spanish, Italian and Portuguese bond yields. The euro's performance this week will be driven by economic data. Additional disappointments will drive the single currency lower but any good news will help encourage a much needed relief rally in euro. The releases include German consumer prices, unemployment and retail sales. Support is at 1.2910 levels, and the resistance is near 1.3000 levels.

GBP/USD: The Pound is trading at 1.6085 levels against the dollar. After appreciating sharply, the British pound is trading slightly lower against the U.S. dollar. So far this month, the improvements in U.K. data give the Bank of England plenty of reasons to hold monetary policy steady when they meet next month. This week a number of housing market indicators will be released along with consumer confidence, a survey of consumer spending and the manufacturing PMI index. Support is near 1.6000 levels and the resistance is near 1.6216 levels.

USD/JPY: JPY is currently trading at 79.74 levels. A new stimulus program of 423 billion yen, lower the expected deflationary pressures and drove the Japanese Yen higher against majority of the major currencies. The BoJ has a monetary policy meeting next week and some investors believe the central bank will ease. But having just eased last month, the BoJ may opt to wait until November. Near term support is at 78.49 levels and the near term resistance is at 80.58 levels. Target 84

AUD/USD:Australian dollar is trading at 1.0357 levels. The Reserve Bank of Australia has taken the rare step of allowing offshore purchases of the Australian dollar to be absorbed on its own ­balance sheet, effectively intervening by keeping a lid on gains in the local currency. The RBA's recent interest rate cuts have had little effect in bringing down the value of the currency, which is still trading above parity. Near term support is seen at 1.0320 levels while immediate resistance is at 1.0470 levels.

Gold: Gold is trading at $1713 levels. The Gold edged up slightly today, after the robust U.S. economic data but gains could be capped by lingering concerns about Greece's debt woes and a possible bailout for Spain. Near term support is at $1698 levels, whereas strong resistance can be seen near $1716 levels. Gold is correcting as per earlier forecasts.

Oil: WTI Crude is trading at $85.89 levels. Support is at 84.90 levels, whereas strong resistance can be seen near the $86.70 level.

DI: Dollar index is trading at 80.10 levels. The U.S. economy expanded by 2.0% in the third quarter compared to a forecast for growth of 1.8%. While the back to back improvements in U.S. data will help boost President Obama's chances of reelection on November 6th as the Joblessness dropped to its lowest level since President Obama took office. This week will be a busy week with personal income, personal spending, the Conference Board's consumer confidence index, ISM manufacturing and non-farm payrolls scheduled for release. Strong near term support is seen near 79.83 levels and the resistance is at 80.81 levels.

(BREAK OF 1.27 IN EURO , 81 IN DOLLAR INDEX AND 54.50 IN RUPEE WILL CONFIRM DOLLAR STRENGTH HAS RESUMED AGAIN)

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