January 21, 2014: Mecklai Financial report on rupee

DXY INDEX

• In the absence of financial markets in US, most of the major currencies gained against Dollar and commodity currencies were muted. The markets were shut on celebration of the Martin Luther King, the legacy of a preacher leading the most peaceful days on the trading scene in weeks.
• Last week dollar rally was supported by upbeat data having convinced investors that the Fed is to continue its gradual withdrawal of stimulus.
• US equities were down from its record high due to mixed economic data, which saw retail sales and US manufacturing improve, but consumer confidence drop, this also pushed down Treasury yields. Also, mixed corporate results are keeping indices away from record high.
• No major data is lined up today and tomorrow that should keep market again in compose mode.

DXY: The index has so far able to sustain above 81.00 mark. Immediate support is seen at 80.90 while upside at 81.29. All oscillators are directionless that will keep the price in the range bound movement. Break on either side of support and resistance is unlikely today.

USDINR

• The market has turned into silence where global currencies are trading thinly, similarly Indian Ruppee too traded in 14 paisa range in previous session and today it is hovering near opening level of 61.48.
• At last the government on Monday paved way for sale of its 29.5 per cent residual stake in Hindustan Zinc Ltd (HZL) as this will help government to contain fiscal deficit since it will garner them nearly 20,000 cr.
• In the meantime, opinion polls was conducted by the agencies where it shows that BJP could see its chances of forming the next government since they are gaining more seats than Congress however they are unable to stand as a majority forming a single party. And with AAP emerging as third national party could threat both resulting to unstable coalition government which was observed in 1990s.
• For traders another toy has started for them is Interest rate futures which started though on promising note on the first day in MCX exchange bagging volume of 930 cr. The underlying will be the 10-year benchmark bonds on which the derivative will be traded
• FIIs are consistently pouring money in Indian equities and debt market with total tune of 3 billion dollar plus has been porued so far in 2014. The 80 percent of the flows was seen in debt which has brought the 10 year yield down below 8.50 percent for the first time in past three months.
• The Reserve Bank of India barred banks from offering gold loans worth more than 75 per cent of the value of gold jewellery and ornaments. It is felt the move is aimed at ensuring a level playing field between banks and non-banking financial companies (NBFCs) offering such loans.
• The Reserve Bank of India is expected to announce debt-switch programme OF Rs. 50,000 cr which is expected to begin anytime now, may not have any major impact on bond yields. the government would buy short-dated debt and, in turn, sell longer-dated bonds aiming to spread out redemptions to later years.
• China is growing its economy grew 7.7 percent last year after adjusting for inflation yet it does not show up in real economic growth rate. The growth is not picking at relevant pace which may keep its peers at bay in 2014.
• Asian stocks rose today after China's central bank injected extra credit into its financial system, helping to offset concern about slower Chinese growth resulting ease in the credit crunch fears.
• Since global markets are clam and quiet plus no major action seen in the domestic market we should expect Rupee to trade in another tight range.
• Technically, USDINR traded within 14 paisa range in previous session and today it has not moved at all to hover near its opening level. We remain intact in our technical levels, the resitance comes at 61.74 and last week lows is held hold a bounce back towards 62.00 mark is highly probable. For importers they should hedge partially on every downmove while exporters can consider to cover if the pair moves back to 62.00 mark.

EURUSD

• The common currency continues to remain under pressure against the dollar, falling to near 2-month low. The pair marked an intra-day low of 1.3508 before ending the session at 1.3546 I thin trading.
• There has been rise in speculation that the ECB might take some policy action, with the EONIA rising above the benchmark refinancing rate. In the last policy meeting, Draghi commented that an "unwarranted" rise in interbank lending rates that underpin euro zone borrowing costs would be one of two possible triggers for another rate cut or other action
• In economic news, Germany?s PPI rose 0.1% (MoM) in December, against the market expectations of a flat change and compared to a 0.1% decline recorded in the preceding month.
• Looking ahead, investors will keep a close watch ZEW sentiments from Germany and Euro-zone to be released today. Also markets will be cautious about the potential announcement by the German Federal Constitutional Court regarding the constitutionality of the ECB?s Outright Monetary Transactions (OMT) policy, due later today.

EUR/USD: The pair is expected to find support at 1.3523, and a fall through could take it to the next support level of 1.3502. The pair is expected to find its first resistance at 1.3567, and a rise through could take it to the next resistance level of 1.3590.

GBPUSD

• The Sterling remained supported against the dollar yesterday, coming off from near 1-month low. The pair ended the session at 1.6426 before marking an intra-day high of 1.6452.
• The Pound was buoyed by Britain's house prices, which rose at the fastest pace since November 2007. Robust Retail Sales data as released on Friday continued to support the pair.
• Elsewhere, leading economic forecasting group, in its report, urged BoE to maintain its interest-rate at a record-low 0.5%, warning that a hike in the benchmark interest rate without an improvement in the real-term wages, could risk 'choking off the fragile consumer-led recovery.'
• Later today, the Confederation of British Industry (CBI) is scheduled to release a report on its UK industrial trends survey.

GBP/ USD ? The pair is expected to find support at 1.6404, and a fall through could take it to the next support level of 1.6383. The pair is expected to find its first resistance at 1.6450, and a rise through could take it to the next resistance level of 1.6475.
Other Markets

• India?s 10-year G-Sec-: The benchmark yield dropped to the three month low of 8.52 percent after the central bank stepped in to provide additional cash to the market through an open market purchase of debt and an additional term repo auction. In the current session, the yield is trading at 8.52 percent ahead of the central bank's 200 billion rupees 28-day variable rate term repo auction later today to further provide cash to the market. As far as liquidity is concerned, a total of 64 banks bid for a total of Rs. 41287 crores today.
• US Treasury Market -: After holiday the treasury markets opened on a weaker note with benchmark yield rising by 3 bps to the day?s high of 2.84 percent before data that may show manufacturing growth accelerated, while existing-home sales rebounded. A gauge of Treasury volatility, the Bank of America Merrill Lynch MOVE index, declined to 60.28 on Jan. 17, compared with a 12-month average of 71.76.
• Crude Oil-: While we had a quiet session as the US was on Martin Luther King Day holiday, crude oil prices eases as Chinese demand eased and the West has lifted some sanctions against Iran, signaling the likelihood of rising exports from the Middle East country. In the Asian session crude is trading at $94.14 levels amid lack of any major data release during the day. During the day, oil is expected to find support at $93.53, and a fall through could take it to the next support level of $92.98. On the flip side, the first resistance is at $94.55, and a rise through could take it to the next level of $95.11.
• Gold-: The yellow metal edged down by 0.38 percent with focus on Fed?s stimulus reduction plans. However, earlier during the day, prices of gold advanced after data showed that holdings in gold ETFs rose by 7.4 tonnes on Friday, the highest daily amount since October 2012. Currently the gold is trading at $1254 levels. Technically, gold is expected to find it?s first support at $1245, and a fall through could take it to the next support level of $1236. On the flip side, immediate resistance will be seen at $1264, and breach of the same can take it to $1274 levels.