Currency Research Desk

26-09-2014

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Currency weekly 26-Sep-14

Currency Research Desk

INDICES LAST 1 week ago % Change

NIFTY 7968.85 8121.45 -1.88

SENSEX 26626.32 27090.42 -1.71

NASDAQ #N/A N/A 4579.79 #VALUE!

DOW JONES INDUSTRIAL #N/A N/A 17279.74 #VALUE!

SHANGHAI COMPOSITE 2347.72 2329.45 0.78

NIKKIE 225 16229.86 16321.17 -0.56

HANGSENG 23678.41 24306.16 -2.58

FTSE Index 6657.97 6837.92 -2.63

CROSS LAST 1 week ago % Change

EURUSD 1.2719 1.2829 -0.86

GBPUSD 1.6290 1.6288 0.01

USDJPY 109.2000 109.0400 0.15

USDCAD 1.1128 1.0963 1.51

USDCHF 0.9490 0.9408 0.87

USDSEK 7.2454 7.1526 1.30

DOLLAR INDEX 85.4050 84.7350 0.79

Global Economic Review & Outlook-

Markets continued to reward the US economy in this week as well, and positive data from the US has continued to sway investor sentiment towards a possibility of an early interest rate hike by the US markets. The major highlights of this week are as follows,

1. Equity markets have retreated from last weeks’ highs.

2. US dollar breached the 85.00 and continued its 11th week of appreciation.

3. US new home sales at 18% against a market expectation of 4.4%.

4. Economic data from Europe continued to disappoint the Markets, and increasing the chances of further depreciation of the shared currency.

5. S&P has upgraded the outlook for India from negative to stable citing the chances of the much required economic reforms more feasible under a stable government.

Most of the Global indices have retreated from last weeks’ highs, and are continuing to trade lower going into the weekend. In terms of the economic data that has been released this week, the major standout was the surprise in the US new home sales data which came at 18 percent against the market expectation of 4.4 percent. Euro area has continued to disappoint with the chances of another round of quantitative easy being eminent. Japan too continued to reel under pressure this week, and the Japanese currency continued to trade over the 109 mark. In terms of the Indian markets, the Equity index was under pressure for most of the week and found respite on the last trading day of the week after the rating agency S&P upgraded the outlook for negative to stable. The US dollar index continued with its global domination and rose for an 11th consecutive week breaking the 85.00 mark, and is currently trading at 85.5. British pound has remained range bound for the week, and is currently trading at 1.6290 up by 0.01 percent from last week’s close. US GDP data that was released on Friday evening came in line with expectations at 4.6 percent and could continue to support the global sentiment of a strong dollar.

Dollar Index:

S2 S1 CLOSE R1 R2 RECOMMENDATION

Dollar Index 83.4540 83.9770 84.7350 84.9100 85.3200 Buy 85.1 TGT 85.6 SL 84.8

Fundamental Outlook-

The US Dollar recorded another week of strong gains with the index rising around 0.5% to trade firmly over the 85 mark, it’s another high this year since 2010. The index extended gains as markets on one side continue to take positivity after the FOMC meeting in mid-September wherein the FED managers increased their median estimate for the federal funds rate to 1.375% at the end of next year, versus June’s forecast for 1.125% whereas on the other side, most of the economy related cues in the country stayed on the bullish side. Meanwhile, on the other side of the Atlantic, Euro currency plunged towards its weakest since Nov 2012as subdued inflation and weaker set of economy news there pressed the case the ECB might look to other ways of stimulus to the economy. Backed by above effects, spread between the EU and the US bond yields widened to a near 15 years high.


Currency Insight

While we had been maintaining mostly better view in the US Dollar index for number of weeks now and we feel no major changes over the same for the coming week. In major data variable, we have the Personal Income, Personal Spending and Pending Home Sales data during the initial half of the week which would be followed by some other variables like S&P/CS Composite-20 YoY, Chicago PMI and Consumer Confidence Index on Tuesday. Though home sales, as been its nature lately might see some volatility most other data points should continue to show decent rise and continue support the basic view that US Economy continues to mend.

However, we feel major focus for the broader markets would be the ADP Employment Change wherein mostly likely that the private sector jobs growth would continue to see monthly increase in the range of around 200,000 which has stood as a major average for much of 2014. The data on the other side is seen making way for the more important Monthly Jobs report from the US economy on Friday. Expectations from Bloomberg suggest an addition by 198K after an unexpected slump towards just 134K in August. Note that, overall Job market in the US has stood strong with economy adding an average of 215,000 Jobs per month so far this year, decently higher than the 195,000 worth of monthly additions for all of 2013. Good growth in Manufacturing, Service and largely positive housing sector is indirectly boosting jobs in the country which eventually is expected to boost consumption and thus spur further economic growth.

Markets participants would also watch at the other readings like Factory Orders, ISM Manufacturing and Services data. Factory orders headline reading should show a good slide as with the case with durable goods orders this week which slipped around 18% as orders from aircraft segment dwindled after a huge surge in previous month. However, core data might continue to show optimism whereas we feel ISM readings too are expected to continue expansion. With internals for the US economy still looking strong whereas inherent weakness likely to continue in the Euro and Yen backed by recent developments in those economies over inflation and other major data; we feel optimism in Dollar index would continue in the coming week as well. Nevertheless, with next week having the ECB meeting and the monthly Jobs data from the US, traders should be ready for good amount of volatility in the USDX and also commodities and other asset classes globally.

TECHNICAL SNAPSHOT:

US Monthly Jobs Report Critical

Source: Bloomberg& Karvy Currency Research


Currency Insight

Economic data for the week ahead

Date Time Country/Region Event Period Surv(M) Prior

09/29/14 18:00 US Personal Income Aug 0.3% 0.2%

09/29/14 18:00 US Personal Spending Aug 0.4% -0.1%

09/29/14 19:30 US Pending Home Sales MoM Aug -0.5% 3.3%

09/29/14 19:30 US Pending Home Sales YoY Aug 2.0% -2.7%

09/29/14 20:00 US Dallas Fed Manf. Activity Sep 10.5 7.1

09/30/14 18:30 US S&P/CS 20 City MoM SA Jul -0.1% -0.2%

09/30/14 18:30 US S&P/CS Composite-20 YoY Jul 7.4% 8.1%

09/30/14 19:15 US Chicago Purchasing Manager Sep 61.5 64.3

09/30/14 19:30 US Consumer Confidence Index Sep 92.4 92.4

10/01/14 16:30 US MBA Mortgage Applications 46266 -- -4.1%

10/01/14 17:45 US ADP Employment Change Sep 204K 204K

10/01/14 19:15 US Markit US Manufacturing PMI Sep F -- 57.9

10/01/14 19:30 US ISM Manufacturing Sep 58.5 59.0

10/01/14 19:30 US ISM Prices Paid Sep 57.0 58.0

10/01/14 19:30 US Construction Spending MoM Aug 0.4% 1.8%

10/01/14-10/02/14 US Domestic Vehicle Sales Sep 13.60M 13.87M

10/01/14-10/02/14 US Total Vehicle Sales Sep 16.90M 17.45M

10/02/14 17:00 US Challenger Job Cuts YoY Sep -- -20.7%

10/02/14 17:00 US RBC Consumer Outlook Index Oct -- 52.4

10/02/14 18:00 US Initial Jobless Claims 46631 -- 293K

10/02/14 18:00 US Continuing Claims 44075 -- 2439K

10/02/14 19:15 US ISM New York Sep -- 57.1

10/02/14 19:30 US Factory Orders Aug -9.0% 10.5%

10/03/14 18:00 US Trade Balance Aug -$40.7B -$40.5B

10/03/14 18:00 US Change in Nonfarm Payrolls Sep 210K 142K

10/03/14 18:00 US Two-Month Payroll Net Revision Sep -- --

10/03/14 18:00 US Change in Private Payrolls Sep 198K 134K

10/03/14 18:00 US Change in Manufact. Payrolls Sep 12K 0K

10/03/14 18:00 US Unemployment Rate Sep 6.1% 6.1%

10/03/14 18:00 US Labor Force Participation Rate Sep -- 62.8%

10/03/14 19:15 US Markit US Services PMI Sep F -- 58.5

10/03/14 19:15 US Markit US Composite PMI Sep F -- 58.8

10/03/14 19:30 US ISM Non-Manf. Composite Sep 58.5 59.6


Currency Insight

Indian Rupee:

CURRENCY CONTRACT S2 S1 CLOSE R1 R2 RECOMMENDATION

USDINR-MCX-SX Oct-2014 61.12 61.42 61.58 62.01 62.30 Buy near 61.35 TGT 62-62.1 SL 61.1

USDINR-NSE Oct-2014 61.12 61.42 61.58 62.01 62.30 Buy near 61.35 TGT 62-62.1 SL 61.1

USDINR Spot 60.46 60.65 60.83 61.11 61.38 Buy near 61.02 TGT 61.72 SL 60.72

Indian Rupee Review and Outlook: Indian Currency market has continued to remain volatile for most of the week. The last two trading sessions have proved to be the most volatile with swings of almost 60 paisa on either side. The major events that we have witnessed are, the decision of Indian Supreme Court canceling almost all the Coal block allocations approved under the NDA government and the upgrade of Indian outlook by S&P. The decision of cancelling the coal blocks has had mixed response initially, but the prospect of an increase in the coal prices which remains to be the biggest input for power generation could have a possibility of increased power prices going forward. Indian rupee depreciated towards the 61.50 mark only to regain all the losses after the much expected upgrade by S&P. In the week ahead, there would be a continued focus on the internationally dollar strength and how EM currencies would be reacting to the same. As of now, the Dollar index which has been appreciating against all major currencies did not make much of an impact on the BRIC countries, when and how this would begin if it does would be interesting to watch out. CRR and Reserve rate decision that are due on the 30th are not expected to change. We would also closely be following Prime Minister Modi’s 4 day visit to the US for any new developments in terms of boosting international sentiment for the Indian industry. Economic data for week ahead-


09/30/14 11:00 IN RBI Cash Reserve Ratio 11202 4.0% 4.0%

09/30/14 11:00 IN RBI Reverse Repo Rate 11202 7.0% 7.0%

09/30/14 11:00 IN RBI Repurchase Rate 11202 8.0% 8.0%

09/30/14 16:00 IN Fiscal Deficit INR Crore Aug -- 27065.0

10/01/14 10:30 IN HSBC India Manufacturing PMI Sep -- 52.4

TECHNICAL SNAPSHOT:


Currency Insight

EUR/USD


EURUSD Spot 1.2740 1.2817 1.2829 1.2983 1.3072 Sell 1.2785 TGT 1.256 SL 1.282

EURINR-MCX-SX Oct-2014 77.89 78.23 78.44 78.96 79.35 Sell 79.5 TGT 78.1 SL 79.8

EURINR-NSE Oct-2014 77.89 78.23 78.44 78.96 79.35 Sell 79.5 TGT 78.1 SL 79.8

Fundamental Outlook–

Euro zone continued with a disappointing performance in this week and has depreciated by 0.86 percent with respect to the US

dollar and is currently trading at 1.2829. The week began with a less than expected manufacturing and services PMI data from

the Euro area and Germany on Tuesday followed by the reduction in the Business climate expectations for Germany on

Wednesday.

Going into the next week, markets would be closely watching for the CPI data for Germany which is due on Monday. Any

reduction in the already lower inflation could prove to be double whammy for the ECB chairman whose plans of TLTRO have

failed last week. Markets have already begun pricing a possibility of another round of quantitative easing for the Euro Zone.

Economic confidence numbers that are due to be released next week are expected to be lower than previous levels and could

have minimal effect on market volatility. In a nutshell, we would like to continue with our view of Euro to depreciate further

going forward, and the divergence between the US and EU interest rates could lead to continued levels of volatility in the

International currency markets.

Economic data for week ahead –


09/29/14 14:30 EC Economic Confidence Sep 100.0 100.6

09/29/14 14:30 EC Industrial Confidence Sep -5.5 -5.3

09/29/14 14:30 EC Consumer Confidence Sep F -- -11.4

09/29/14 14:30 EC Services Confidence Sep 2.5 3.1

09/29/14 14:30 EC Business Climate Indicator Sep -- 16.0%

09/29/14 17:30 GE CPI MoM Sep P -- 0.0%

09/29/14 17:30 GE CPI YoY Sep P 0.8% 0.8%

09/30/14 13:25 GE Unemployment Change (000's) Sep -5K 2K

09/30/14 13:25 GE Unemployment Rate Sep 6.7% 6.7%

09/30/14 14:30 EC Unemployment Rate Aug 11.5% 11.5%

09/30/14 14:30 EC CPI Estimate YoY Sep 0.3% 0.4%

09/30/14 14:30 EC CPI Core YoY Sep A 0.9% 0.9%

10/01/14 13:25 GE Markit/BME Germany Manufacturing PMI Sep F -- 50.3

10/01/14 13:30 EC Markit Eurozone Manufacturing PMI Sep F 50.5 50.5

10/02/14 14:30 EC PPI MoM Aug -- -0.1%

10/02/14 14:30 EC PPI YoY Aug -- -1.1%

10/02/14 17:15 EC ECB Main Refinancing Rate 37530 0.1% 0.1%

10/02/14 17:15 EC ECB Deposit Facility Rate 37530 -0.2% -0.2%

10/02/14 17:15 EC ECB Marginal Lending Facility 37530 0.3% 0.3%

10/03/14 13:25 GE Markit Germany Services PMI Sep F -- 55.4

10/03/14 13:25 GE Markit/BME Germany Composite PMI Sep F -- 54.0


Currency Insight

10/03/14 13:30 EC Markit Eurozone Services PMI Sep F -- 52.8

10/03/14 13:30 EC Markit Eurozone Composite PMI Sep F -- 52.3

10/03/14 14:30 EC Retail Sales MoM Aug -- -0.4%

10/03/14 14:30 EC Retail Sales YoY Aug -- 0.8%

TECHNICAL SNAPSHOT:

GBP/USD:


GBPUSD Spot 1.5949 1.6099 1.6288 1.6462 1.6675 Range 1.6378-1.6225

GBPINR-MCX-SX Oct-2014 99.71 100.19 100.35 101.08 101.49 Range 101.2-99.9

GBPINR-NSE Oct-2014 99.71 100.19 100.35 101.08 101.49 Range 101.2-99.9

Economic data for week ahead:


09/29/14 14:00 UK Net Consumer Credit Aug 0.9B 1.1B

09/29/14 14:00 UK Money Supply M4 MoM Aug -- 0.3%

09/29/14 14:00 UK M4 Money Supply YoY Aug -- -1.0%

09/30/14 04:35 UK GfK Consumer Confidence Sep 0.0 1.0

09/30/14 11:30 UK Nationwide House PX MoM Sep 0.5% 0.8%

09/30/14 11:30 UK Nationwide House Px NSA YoY Sep 10.4% 11.0%

09/30/14 14:00 UK Lloyds Business Barometer Sep -- 47.0


Currency Insight

09/30/14 14:00 UK GDP QoQ 2Q F 0.8% 0.8%

09/30/14 14:00 UK GDP YoY 2Q F 3.2% 3.2%

09/30/14 14:00 UK Current Account Balance 2Q -18.7B -18.5B

09/30/14 14:00 UK Index of Services MoM Jul -- 0.3%

10/01/14 14:00 UK Markit UK PMI Manufacturing SA Sep 52.9 52.5

10/02/14 14:00 UK Markit/CIPS UK Construction PMI Sep 63.3 64.0

10/03/14 14:00 UK Official Reserves Changes Sep -- -$377M

10/03/14 14:00 UK Markit/CIPS UK Services PMI Sep 59.0 60.5

10/03/14 14:00 UK Markit/CIPS UK Composite PMI Sep -- 59.3

TECHNICAL SNAPSHOT:


Currency Insight

USD/JPY


USDJPY Spot 105.5075 106.8550 109.0400 109.5050 110.8075 Buy 108.9-108.95 TGT 110.2 SL 108.4

JPYINR-MCX-SX Oct-2014 56.55 57.60 59.45 58.30 57.95 Sell 56.9 TGT 55.7 SL 57.2

JPYINR-NSE Oct-2014 56.55 57.60 59.45 58.30 57.95 Sell 56.9 TGT 55.7 SL 57.2

Fundamental Outlook:

Last week we had only one major data variable from Japan namely the CPI inflation gauge which fell moderately and added to broader market concerns that BoJ’s targeted 2% push for prices rise might not be that easy to achieve. CPI Ex-fresh food rose 3.1% however actual gauge excluding the effect of April’s sales tax increase stood just at 1.1% fairly weaker than targeted levels. Consumption has really taken a hit lately as increase in taxes is leading to lower than normal growth in the nation indirectly affecting all segments of the economy. Already aforementioned cues and comments from major BoJ officials about their keenness towards a depreciating currency has pushed the Yen to multi-year lows against major currency pairs globally with the latest reading for USDJPY standing at 109 mark, almost unchanged on a week on week comparison after recording 6 weeks of continues decline against the USD. Next week there are large number of data points from Japan like National CPI, Jobless Rate, Retail Trade, Industrial Production, Housing Starts and most importantly the Tankan Large and Small business outlook. While initial expectations over most of the data releases seems to be stable to weaker we might see the deprecating trend in JPY continuing in the coming week/s as well. Also note markets will take directional cues from the major economic and monetary policy data from either side of Atlantic.

From the other major Asian economy, China, we have government and HSBC Manufacturing and Services data next week which would be followed closely for movement in industrial commodities sector. This week, we saw surprising positive trend in the flash Man PMI as reported by HSBC/Markit wherein it marked up to 50.50 mark against expectations of a number near 50. Overall we feel Chinese numbers would be stable in the coming week.

Economic data for week ahead-


09/30/14 05:00 JN Jobless Rate Aug 3.8% 3.8%

09/30/14 05:00 JN Job-To-Applicant Ratio Aug 1.1 1.1

09/30/14 05:00 JN Overall Household Spending YoY Aug -3.6% -5.9%

09/30/14 05:20 JN Retail Trade YoY Aug 0.3% 0.5%

09/30/14 05:20 JN Retail Sales MoM Aug 0.7% -0.5%

09/30/14 05:20 JN Industrial Production MoM Aug P 0.2% 0.4%

09/30/14 05:20 JN Industrial Production YoY Aug P -1.1% -0.7%

09/30/14 09:30 JN Vehicle Production YoY Aug -- -1.7%

09/30/14 10:30 JN Housing Starts YoY Aug -13.7% -14.1%

09/30/14 10:30 JN Annualized Housing Starts Aug 0.842M 0.839M

09/30/14 10:30 JN Construction Orders YoY Aug -- 24.4%

09/30/14 10:30 JN Small Business Confidence Sep -- 47.7

10/01/14 05:20 JN Tankan Large Mfg Index 3Q 10.0 12.0

10/01/14 05:20 JN Tankan Large Non-Mfg Index 3Q 17.0 19.0

10/01/14 05:20 JN Tankan Large Mfg Outlook 3Q 12.0 15.0

10/01/14 05:20 JN Tankan Small Mfg Outlook 3Q 0.0 3.0

10/01/14 05:20 JN Tankan Small Mfg Index 3Q -2.0 1.0

10/01/14 05:20 JN Tankan Small Non-Mfg Outlook 3Q -2.0 0.0

10/01/14 07:05 JN Markit/JMMA Japan Manufacturing PMI Sep F -- 51.7

10/01/14 10:30 JN Vehicle Sales YoY Sep -- -5.0%


Currency Insight

10/01/14-10/07/14 JN Official Reserve Assets Sep -- $1278.0B

10/02/14 05:20 JN Monetary Base YoY Sep -- 40.5%

10/03/14 07:05 JN Markit Japan Services PMI Sep -- 49.9

10/03/14 07:05 JN Markit/JMMA Japan Composite PMI Sep -- 50.8

TECHNICAL SNAPSHOT:

Prepared by:-

Aurobinda Prasad ([email protected]) – Research Head

Jitendra Parashar –([email protected])-Technical Analyst

Rakesh Chelapareddy ([email protected]) – Fundamental Analyst

DisclaimerThe information and views presented in this report are prepared by Karvy Stock Broking Limited. The information contained

herein is based on our analysis and up on sources that we consider reliable. We, however, do not vouch for the accuracy or the completeness

thereof. This material is for personal information and we are not responsible for any loss incurred based upon it. The investments discussed or

recommended in this report may not be suitable for all investors. Investors must make their own investment decisions based on their specific

investment objectives and financial position and using such independent advice, as they believe necessary. While acting upon any information

or analysis mentioned in this report, investors may please note that neither Karvy nor any person connected with any associated companies of

Karvy accepts any liability arising from the use of this information and views mentioned in this document. The author, directors and other

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