Daily Market Report: Wednesday- October 10, 2012

The Indian Rupee opened at 52.95 levels after closing yesterday 52.72 levels nearing our target of 53 levels. The intra day range for the rupee is seen between 52.65-53.20 levels. The Asian shares fell on Wednesday as the Spain's finance minister signaled the country is not on the verge of an aid request. The IMF downgraded its 2012 global growth forecast from 3.5% to 3.3%, the slowest since 2009.

The HSBC's emerging markets index (EMI), based on 23 services and manufacturing purchasing managers' surveys conducted across 18 emerging economies, slipped to 52.1 in the three months until September from 53.2 in the second quarter.

The safe-haven dollar rose on Wednesday as the euro zone's festering debt crisis put the single currency under renewed pressure. The Spanish and Portuguese 10 year bond yields increased more than 10bps.

Yesterday ECB President Draghi delivered a speech where he admitted that the euro area economy probably weakened in the third quarter. The Troika's review of Greece has been positive which means bailout funds will most likely be released later this month or early next month. In the meantime, unresolved problems in Spain and Greece still pose a threat to stability in the financial markets.

The point here to be noted is, in spite of QE3 Dollar is seen recovering against the majors, because other central banks are easing as well. In fact, Dollar is trading higher now against the Euro than before the Fed announced its third round of Quantitative Easing.

The U.S. Treasuries yield dropped on Tuesday as bleak views of global growth prompted investors to dump riskier assets and pour money into safe havens. The Indian 10-year bond yield was down 1 bps at 8.14% in a range-bound. The market will be closely watching the IIP figures due on 12th and Inflation figures on 15th of this month.

Outlook: Dollar has definitely made a temporary short term bottom below 51.50 levels. It has been the 4th day of rupee weakness. Exporters maintain selling partially only in long term. Short term use the weakness to get maximum rate. In case of any surprises pre-utilize long term export covers. This strategy will protect you from any immediate reversal or rupee weakness which we just saw yesterday. Importers had been asked to cover around 52 and 52.50. Target 53.05

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