Daily Market Report: Wednesday - January 2, 2013

The Indian Rupee opened at 54.40 levels after closing yesterday at 54.68 levels. The Intraday range for the rupee is expected between 54.25 - 54.55  Levels.

The Indian rupee started the new year on a positive note after U.S. lawmakers agreed on a dealwhich would help avert the "fiscal cliff" but weak domestic data limited the gains. The increasing imports and current account deficit, political instability, high fiscal deficit, high inflation, uncertainty in Europe and US will continue to hamper the local currency in the medium term.

The Asian markets are trading positive with tentative gains as investors anxiously wait to see if theU.S. Congress can strike a last-minute compromise and avert the harsh "fiscal cliff" tax rises and spending cuts that are technically already in force.

The U.S. Senate early on Tuesday passed a bill that aims to avoid the cliff's automaticimplementation of $600 billion in spending cuts and tax increases. But the bill's fate was uncertain in the House of Representatives, where a number of Republicans complained it did not tackle spending cuts adequately.

The U.S. house moves to vote on Fiscal Cliff to approve a bill passed by the Senate after House Republicans abandoned efforts to impose further spending cuts. The move towards a House vote came after it became clear Republicans were not going to be able to push through the spending cuts amendment.

With the last-minute Senate deal on the fiscal cliff and the prospects of more squabbling as the U.S.nears its debt ceiling in February, there is little comfort to investors as political events continue to move market fundamentals.

The US 10 year treasury yield is trading at 1.75%. The Indian federal bond yield ended at 7.99%. Bond prices are widely expected to rally in early 2013 as the central bank is expected to cut interest rates as early as January and buy more bonds to ease a continued cash crunch in the banking system.

outlook: Exporters were already asked cover partially around 55 plus levels, Importers should cover on dips around 54.20 - 54.40 levels. Overall: USD/INR Bullish

EUR/USD: The EUR/USD is currently trading stronger at 1.3297 levels.  The Euro is trading close to its two week high against the US dollar  after the U.S. averted the looming 'fiscal cliff' in a last-minute deal. The losses in the US dollar made all the riskier assets to rally yesterday. On the data front, we will be watching German CPI, and Euro zone manufacturing PMI reports today. Support is at 1.3166 levels, and the resistance is near 1.3375 levels.

GBP/USD:  The Pound is trading stronger at 1.6356 levels against the US Dollar. The US House of Reprensatatives looked set to end the fiscal cliff crisis in a vote which made the US Dollar trade on a weaker note against the major currencies. The pair is expected to find a support near 1.6105 levels and the resistance is near 1.6500 levels. Overall in a range with bearishbias.

USD/JPY: The yen is currently trading at 87.18 levels.  The Japanese yen continues its losing streak against the US dollar taking cues from the speculations that the central bank will act soon on the policy front. The Yen has been heavily falling after  a new government was elected in December that has vowed to put pressure on the Bank of Japan to do more to kick-start the economy and weaken the currency.  Near term support is at 84.20 levels and the near term  resistance is at 88.08 levels. Target of 84-85 levels achieved and  further target it to 90 levels.

AUD/USD:   Australian dollar is trading stronger at 1.0484 levels against the US Dollar. On the data front, Australian home prices fell for the second straight year as low consumer sentiment dented impact of interest rate cost. In spite of a negative data, the Australian Dollar is trading higher taking cues from the US fiscal cliff vote.  Near term support is seen at 1.0290 levels while immediate resistance is at 1.0588 levels.

Gold: Gold is trading at $1676 levels.  Near term support is at $1655 levels, whereas strong resistance can be seen near $1685 levels. Look for further dips to initiate buys.

Oil: WTI Crude is trading at $92.36 levels. The crude prices are trading above its two month high after the US politicians signalled a last-minute deal to avoid the economy-crunching fiscal cliff.  Support is at $89.85 levels, whereas strong resistance can be seen near the $93.75 level. Overall range bound.

DI: Dollar index is trading at 79.31 levels.  The US dollar is trading below its one week low against the majors as US lawmakers move closer to pass the legislation to avert the so-called fiscal cliff of automatic spending cuts and tax increases. The so called Fiscal Cliff is almost on the verge of getting resolved, which has already boosted the demand for riskier assets like the AUD, Euro and the global stock markets.  Strong near term support seen near 78.90 levels and the resistance is at 80.20 levels. Overall the index is bullish.

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