Weekly Forex Research (21 February 2009)

Summary: Global currency market witnessed most volatility as risk aversion gripped financial market during the week. Asian currencies including Rupee came under fire with their biggest weekly drop in four months, pressured by significant fall in global equities, on worsening ecession concern. Rupee, that was trading in increasing narrow range for the past several weeks, broken down beyond 50 level in both spot and futures market.

Market Analysis:
World equities market tumbled across the Globe. Asian benchmark MSCI Asia Pacific Index dropped 6.98% and SENSEX gave up previous week’s gain with weekly decline of 8.22% due to combined factors like disappointed interim budget announcements by government, expected interest rate cut by RBI, ballooning trade deficit and weak global sentiment.

Asian currencies including Rupee came under fire fueled by sharp drop in equities and weaker exports. Spot Rupee dropped against USD and EUR by 2.62 and 2.45% respectively during the week. After a record fall on Wednesday, Rupee recovered marginally on Thursday due to the Reserve Bank of India’s intervention and the sale of dollars by some corporate houses. USD/INR futures came under pressure on Friday on what looks to be profit taking and guided by recovery in EUR/USD pair. It looks like levels closer to the psychological 50.00 mark is a major hurdle for any further appreciation of Dollar. However, increasing number of market participants now believe Rupee to fall more by year end due to no sign of global market recovery.

Macro Analysis:
Indian WPI as on Feb 07 continued to tumble with prices rising 3.92% y/y versus previous week of 4.39% y/y. While the disinflation trend continues beyond base effects, WTI prices indicating a clear signal that demand remains under pressure given the nervous business sentiment and job loss fear looming across the country.
On monetary policy, now since RBI has plenty of room to ease rates further, the probability of its happening has increased significantly. Any announcement of rate cut would be supportive for Dollar. On fiscal policy, FinMin Pranab Mukherjee said the government will provide additional resources to stimulate demand and more to help key sectors such as housing, infrastructure and real estate. It is widely expected that the fiscal deficit will rise because the government spending would rise in the coming times in order to support the economy from overcoming the recession.

Technical Analysis: Sharp rally to past 50 is setting bulls on strong footing and with the 7-week consolidation decisively broken on the upside, bullish trend is set, targeting higher hurdle at 50.58 and then 52. However, there may be profit booking at higher level of USD/INR if the global market starts consolidating in the week ahead. However, any significant downside move in global equities next week would provide up side opportunity in USD/INR trade. Watch out for every move in Equities the week ahead.

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http://www.box.net/shared/i62s06cmuo - Pumarth FOREX Research 21 Feb 09.pdf

Weekly Forex Report (14 February 2009)

Summary: Rupee Future started the week with strength but declined to 48.9 in the middle and finally closed at 0.05 paisa higher from the last week thanks to positive sentiment in India equity market. With SENSEX holding onto gains, downward pressure should remain on the USD/INR going forward. Firm benchmark yield is also supportive to the local currency.

Market Analysis: Rupee future ended at 48.7050 up marginally during the week. Major movement was seen in GBP/INR pair that ended down 2.88% from 71.8253 to 69.7870 as British pound declined against all major currencies. Rupee declined during the middle of the week on back of lower IPP numbers released. However, the firm SENSEX closing towards the end of week supported the local currency. Pessimistic sentiment prevailed about future trend in FDI and FII flow into the country. HSBC predicted Rupee to touch as low as 54 per dollar by the year end as the bank see Rupee’s remarkable stability in recent weeks to last soon and may weaken past 50 per dollar quickly as foreign direct investment (FDI) and remittances may fall sharply. The benchmark JP Morgan Asia Dollar Index was seen down by 0.80% due to sluggish export numbers announced by key Asian countries and weak Asian equity market as reflected in MSCI Pacific Index that ended down 2% from the earlier week.

Technical Analysis: Range bound in the broader 48.55-49.15 band likely to continue as the pair is still sentiment driven.

9 PSBs on board new currency futures exchange

Bourse gets SEBI approval; launch in 2 months.
Robust growth in trading volumes in currency derivatives has drawn nine public-sector banks led by Bank of India, Federal Bank, MMTC, TCS and Jaypee Capital to jointly float India’s fourth currency futures exchange — the United Stock Exchange of India Ltd (USEIL).
Read full story.

Comment: Can someone imagine multiple exchanges in India for the same instrument. No benefit for anyone. What regulators are doing?

Currency hedging expected to rise

Global volatility strengthens case for investors to offset foreign exchange risk. Click here to read full article at source.
Comment: Finally International investors are realising need for exchange risk management for global portfolio.

Weekly Forex report (February 7, 2009)

Summary: Rupee strengthened in Futures trade by 0.55% during the week ending 6th February. The market remained peace and quiet and witnessed ranged trading with gradual appreciation of Rupee. The rupee strengthened mainly because the dollar has gone weaker against the pound and euro during the week.

Market Analysis: Rupee ended at 48.7575 up 0.2725 or 0.55% in USDINR February Futures
Contract during the week. Indian Rupee strengthened against USD in line with other G-7
and Asian currencies. US Dollar Index was down 0.76% this week as the European Central
Bank kept interest rates unchanged on Thursday and the pound hit a two and half week
high against the dollar. The benchmark JP Morgan Asia Dollar Index finished the week
higher by 0.64% as most of Asian currencies appreciated against greenback.
Demand for USD has been hit by the fall in crude prices, but sluggish exports were
checking a rapid rupee rise. With a provisional estimate of exports at $143 billion during
April-January 2009 and imports amounting to $245 billion during the same period, the
trade deficit crossed a record $100 billion in the first 10 months of the current fiscal to
stand at $102 billion. Indian Rupee was also supported by positive sentiment in the Indian
equities market during the week.

Technical Analysis: The Rupee is still trading in a very narrow range and yet to show
any directional trend. Sentiment in Indian equities market remains key factor to watch for
USDINR trade at the moment.

Fitch affirms India's BBB ratings

Mon Feb 9, 2009
Fitch Ratings has today affirmed the Republic of India's Long-term foreign currency and local currency Issuer Default Ratings (IDRs) at 'BBB-' (BBB minus). The Outlook on the foreign currency IDR remains Stable, and the Outlook on the local currency IDR remains Negative. At the same time, the agency has affirmed India's Short-term foreign currency IDR at 'F3' and Country Ceiling at 'BBB-' (BBB minus).

Weekly forex report 31-01-09

Summary: Rupee traded in a narrow range this week and completed monthly loss on concern the corporate earning will continue to decline and FIIs will pullout from market. The Dollar started trading with gain during the beginning of week but failed to sustain at upper level and finished at loss against the Rupee.
Market Analysis: USD/INR January futures contract expired at 48.87 on 28th February 2009. However dollar ended weak at 48.9300 on Friday (30 January 2009) from last week closing of 49.2425. The dollar February contract at NSE went up as high as 49.40 at the starting of week but pared gain later. Implied volatility on one-month dollar-rupee options was at around 11 percent this week, down from 15% last week. The JP Morgan Asia Dollar Index, which tracks 10 Asian currencies, went higher at 105.5 during the week but finished at 104.69, almost at the same level of last week. Overall Asian currencies remained indecisive for the whole week.
USD/INR Technical Chart

Technical Analysis: The Rupee is trading at its immediate support level of 49 and has shown several bouncing from the level. Any fresh infusion of negative sentiment in the equity market may force Rupee to break support.

Weekly Currency Report

Summary: We expect Indian rupee (INR) to continue weaken against US Dollar due to continuing demand from importers and foreign fund withdrawal from Indian equity market. However, psychological resistance at level of 50 remains strong in the coming week.

Market Analysis: INR has been moving sidewise between 50 and 47 level since the last three months. Implied volatility on one-month dollar-rupee options was at around 15 percent this week, the lowest since September 2009. The gauge of fluctuations touched 33 percent on Oct. 27, the highest in at least nine years. Traders quote implied volatility, a gauge of expected swings in exchange rates, as part of option prices. Ending this week, the most Asian currencies were down against the dollar as investors remain risk averse amid the deteriorating global economic situation. The JPMorgan Asia Dollar Index, which tracks 10 Asian currencies, fell for a fifth week, the longest run of losses since September. INR may touch 50 if weakness persists in equities when Asian markets reopen in the middle of next week after Chinese New Year.

Technical Analysis: A very short term outlook on INR against US Dollar remains bearish in tandem with other Asian currencies.