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Euro, GBP trading weak

“With falling inflation and the stagnant economy, the MPC

are likely to expand QE markedly further. The next QE

installment probably will be announced at the February

meeting, but there is an outside chance the MPC will pre-

announce extra QE at the upcoming January meeting.”

London-based economist Michael Saunders, Citibank, BoE’sasset purchase program

“They urgently need to formulate and clearly communicate

a vision for a sound and stable euro area that deserves the

name fiscal compact.”

Thomas Harjes, senior European economist at BarclaysCapital in Frankfurt, on Merkel-Sarkozy meeting

Currencies—Euro, GBP tumble

• US Economy: Unemployment Rate Falls as Economy Adds200K Jobs

• Bill Gross Says U.S. Employment Market Faces Tough Slog

• Fed’s Dudley Calls for Government Action to ReviveHousing

• BOE Asset Program May Total 600 Billion Pounds, CitigroupSays

• Monti Says Italian Budget Will Be Balanced in 2013

• Euro-Area Economic Confidence at Two-Year Low on DebtCrisis

• German Industrial Orders Post Sharp Fall in November

• U.S. Stocks Decline as Jobs Growth Fails to Extend WeeklyRally

• CFTC: Net Euro Short Position $22.7 Billion, Increases 8%

• Speculators Build Largest Net Short Euro Position Since2007-CFTC

• Iran Will Close Oil Route If Exports Blocked, AP Cites Officer

• Hormuz Bypass Oil Pipeline Said Delayed Amid IranTensions

• EUR/USD closes the week at its lowest level since Sep2010

• GBP/USD drops to 1-week low after NFP

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• Indian Rupee Completes First Weekly Gain in a Monthon Inflows

• Spanish, Italian Bonds Decline as Economic ConfidenceWanes

• IMF to cut growth forecast as debt crisis deepens

• Data Show Euro Area Downturn Deepened at Year-End

• Hungary’s Long-Term Credit Rating Cut to Junk by Fitch

Financial markets remained in risk off mode despite US jobreport coming in better than forecast. Euro fell sharply onEuropean sovereign concerns as the single currency tumbledbelow 1.27 vs. the US Dollar.

U.S. employers added more workers to payrolls than forecastin December. The 200,000 increase followed a revised100,000 gain in November that was smaller than initiallyestimated. The median projection in a Bloomberg Newssurvey called for a December gain of 155,000. Theunemployment rate unexpectedly fell to 8.5 percent, thelowest since February 2009, while hours worked and earningsclimbed.

The rating agency Fitch cut Hungary’s long-term creditrating to junk. Fitch Ratings downgraded Hungary’s long-term foreign and local currency Issuer Default Ratings by 1notch to BB+ and BBB-, from BBB- and BBB respectively;outlook on the L-T IDRs is negative. The rating agency alsodowngraded Hungary’s short-term IDR to B from F3, and itscountry ceiling by two notches, to BBB from A-

Germany’s factory orders data showed a steep decline inNovember.

The US equities closed lower, though were up on the week,hence one can’t read much into that movement. Still, goingby sluggish tone in the Asian equities before Merkel-Sarkozymeeting one can deduce that the US job report has probablynot done much to alleviate the overall concerns.

The meeting of German Chancellor Angela Merkel and FrenchPresident Nicolas Sarkozy in Berlin today will be followed bya round of talks among euro-area leaders before the nextsummit in Brussels on Jan. 30. Italian Prime Minister MarioMonti also will visit Berlin this week, and Sarkozy and Merkelwill both travel to Rome on Jan. 20 for negotiations with

Currency WatchFor Private Circulation only January 09, 20122

sharekhan currency watch

the Italian government.

Out of China, there are no convincing signs of immediateeasing in monetary policies.

The International Monetary Fund will probably cut itsforecast for global economic growth as the European debtcrisis worsens, Managing Director Christine Lagarde said.The Washington based-fund will publish revised forecastson Jan. 24 or 25 that are "consistent with reality," Ms.Lagarde told reporters in South Africa's capital, Pretoria.The IMF in September cut its forecast for global growth to4% in 2012, predicting "severe" repercussions if Europefailed to contain the debt crisis.

The Indian Rupee did well last week as the currencycompleted its first weekly gain in a month on speculationforeign funds will step up purchases of the nation’s assetsafter the central bank signaled it may cut borrowing costs.The currency was also boosted as the Reserve Bank of Indiaeased rules for companies to borrow from abroad. Foreignfunds boosted holdings of Indian shares by $102 millionthis week through Jan. 4, exchange data show, after thegovernment allowed overseas individual investors to directlybuy local equities. RBI Deputy Governor Subir Gokarnreiterated that India’s cycle of monetary tightening has“peaked” and a reversal will depend on inflation andeconomic growth.

Asia Watch—PBOC's Zhou: Not A Good Time To Liberalize

Interest Rates –Xinhua

Pushing forward liberalization of interest rates in Chinanow could cause problems in areas including capital flowsdue to the country's interest-rate gap with developedcountries, Xinhua news agency on Sunday cited People'sBank of China Gov. Zhou Xiaochuan as saying. "It is not avery good time to push forward market-oriented interestrates," Zhou said in the report. Zhou also said China couldwiden the yuan's trading band when the country's capitalinflows and outflows are more balanced, Xinhua reported.China this year faces risks from the international economydespite a positive outlook for the domestic economy, andmust be ready to combat external shocks with appropriatepolicy instruments, Zhou said.

A global downturn would likely cause a mass withdrawal offoreign capital from China, Zhou said.

Europe Watch—German Industrial Orders Post Sharp Fall

in November

Industrial orders in Germany fell by a much bigger-than-expected 4.8pc in November compared to a month earlier,hit by falling orders from abroad, new data showed Friday.An increase in orders for October was also revised slightlydownwards to 5pc from 5.2pc, according to the figuresreleased by the Economy Ministry. Orders from abroadslumped by 7.8pc in November while those from Germanyfell by 1.1pc, the ministry said in a written statement.

Other figures revealed German consumption was at itsstrongest level for more than a decade in 2011 and new carregistrations, a key gauge of demand in one of the country'smost important industrial sectors, rose in December andover the whole of 2011.

Data Show Euro Area Downturn Deepened at Year-End -Euro zone retail sales fell and economic sentiment souredat the end of 2011, pointing to recession in the monthsahead, but the first improvement in the business climatein 10 months offered hope that the expected downturn maybe mild.

The euro zone accounts for about 16 percent of the worldeconomy.

Retail sales for the bloc fell 0.8 percent in November fromOctober; data released Friday by the European Union’sstatistics office Eurostat showed. Economists polled byReuters had forecast a monthly fall of just 0.2 percent. Thevolume of sales fell by 0.9 percent in Germany, the eurozone’s top economy, and was down 0.4 percent in Franceand 0.7 percent in Spain. Pointing to the cautiousness ofEuropean households even in the run-up to Christmas, thebusiest shopping time of the year, the European Commissionsaid Friday that in December, consumer confidence fell 0.7points in the 17 countries sharing the euro. In its overallreading of economic sentiment in the euro zone, thecommission said its indicator fell 0.5 points to 93.3, itslowest level since November 2009.

A rise in the purchasing managers’ indices for bothmanufacturing and services in December had been a causefor optimism, but the commission’s figure may dampenthat.

One bright spot in the data was the improvement in thecommission’s business climate indicator, which increasedfor the first time in 10 months as factory managers showedoptimism about future production plans and export orderbooks. That indicator was -0.31 points in December,compared to -0.42 points in November and better than the-0.50 point reading seen by economists polled by Reutersfor the month.

Spanish, Italian Bonds Decline as Economic Confidence

Wanes-Spanish and Italian bonds fell as European confidencein the economic outlook fell to a two-year low, fuelingconcern that the most-indebted countries will struggle tocut budget deficits amid the slowdown. Losses on Fridaypushed the yield on 10-year Italian securities to the highestsince Nov. 30 even as the European Central Bank was saidto be buying the nation’s bonds, along with those of Spain.

Euro-Area Economic Confidence at Two-Year Low on Debt

Crisis - European confidence in the economic outlook fellto the lowest in more than two years and unemploymentremained at a 13-year high as the euro area’s leadersstruggled to contain a worsening fiscal crisis.

Currency WatchFor Private Circulation only January 09, 201233

sharekhan currency watch

An index of executive and consumer sentiment in the 17-nation euro area fell to 93.3 in December from a revised93.8 in the previous month, the European Commission inBrussels said Friday. That was in line with the median of 19economists’ estimates in a Bloomberg survey. Theunemployment rate held at 10.3 percent in November, aseparate report showed.

Monti Says Italian Budget Will Be Balanced in 2013 -Italian Prime Minister Mario Monti said his country has made“unequaled efforts” and will balance its budget by 2013.

A balanced budget implies a primary surplus of 5 percent ofeconomic output, Monti said at a conference in Paris.

BOE Asset Program May Total 600 Billion Pounds,

Citigroup Says - The Bank of England may buy a further325 billion pounds in assets as the economy weakens andthe Euro-area enters a recession, Citigroup Inc. said.Citigroup raised its forecast for the total amount ofquantitative easing the central bank’s Monetary PolicyCommittee will do to 600 billion pounds from a previousprediction of 500 billion pounds.

Euro-Zone Government Bond Issuance Switches To Higher

Gear - Issuance of euro-zone government bonds switchesto high gear this week, with Spain, Italy, the Netherlands,Austria and Germany seeking to sell around EUR20 billionamid the continuing debt crisis, keeping each sale a closelywatched event.

Vincent Chaigneau, head of fixed-income strategy at SocieteGenerale said that supply from peripheral issuers is againbecoming a threat to the premiums they have to pay fortheir higher level of risk.

Spain's and Italy's auctions will draw the most attention—

the former because the new government will face a toughjob in lowering this year's budget deficit after last year'sgap was missed by a wide range, and the latter because itsfunding costs have failed to stay down despite additionalausterity measures from Prime Minister Mario Monti'sgovernment.

Spain will launch its new 4% July 2015 bond Thursday, besidestapping the existing April 2016 and October 2016 bonds. Itwill announce the target volume Monday.

Italy will release both the bonds an offer Jan. 13 and theirtarget volumes Monday.

Austria will go ahead with its January bond auction for thefirst time since at least 2004, rather than canceling it infavor of a syndicated issue. Austria faces pressure becauseof the country's heavy exposure to Hungary.

Austria will auction EUR1.32 billion of the 4% September2016 and 3.65% April 2022 bonds Tuesday. The same day,the Netherlands will sell up to EUR3.5 billion of the new0.75% April 2015 bond.

Germany will launch the new February 2017-dated federalnote, or bobl, Wednesday with EUR4 billion.

Newedge economist Annalisa Piazza calculates thatredemption and coupon payments will free more than EUR16billion in cash next week. At least part of this cash is likelyto be reinvested in next week's supply. (Down JonesNewswire)

US Watch—Fed Policy Makers Urge More Housing Aid

Three Federal Reserve policy makers said the U.S.government should try new ways to spur the housing marketwithout agreeing about how much more the central bankneeds to do to bring down interest rates. New York FedPresident William C. Dudley said in New Jersey that“additional housing policy interventions” could help boostgrowth, even as the Fed should consider further easing.Boston Fed President Eric Rosengren, speaking inConnecticut, took the more-aggressive position ofsupporting the purchase of mortgage-backed securities,while Fed Governor Elizabeth Duke said in Virginia that thecentral bank’s current monetary stance is “appropriate.”However, Federal Reserve Bank of St. Louis President JamesBullard said the Fed probably wouldn’t begin a new roundof bond purchases following “encouraging” data showingthe U.S. economy gained 200,000 payroll jobs in December.

US Corporate Profit Growth at 2-Year Low—U.S.corporations ended 2011 with the slowest profit growth intwo years as the mending economy was met by a Europeanslump that vexed companies more tied to global sales.

Standard & Poor’s 500 Index companies may have earned$24.74 a share (SPX) in the fourth quarter, according toanalysts’ estimates compiled by Bloomberg as of Jan. 6.The projected 6 percent gain is the smallest against a year-earlier quarter since September 2009, just after the U.S.recovery began.

“Slowing global growth, some impairment of export activityto Europe and perhaps even the rise of the dollar collectivelyhave begun to sort of work against the multinational story,”said Mark Luschini, chief investment strategist atPhiladelphia- based Janney Montgomery Scott LLC, whichmanages $54 billion. While growth is still “subpar,” he saidhe intends to invest more in the U.S. to avoid higherinternational risk.

Market watch – Asian Stocks Decline a Third Day as

Bullard Says New Fed Buying Unlikely

Asian stocks outside of Japan dropped for a third day afterFederal Bank of St. Louis President James Bullard said theFed probably won’t begin a new round of bond purchasesamid “encouraging” U.S. economic data.

Euro Touches 11-Year Low Versus Yen Before Merkel, SarkozyMeet on Crisis - The euro touched an 11-year low againstthe yen before the German and French leaders meet amid

Currency WatchFor Private Circulation only January 09, 20124

signs Europe’s sovereign-debt crisis is damping the region’sprospects for growth.

The 17-nation euro traded 0.4 percent from the least innearly 16 months versus the dollar ahead of a report todayforecast to show industrial production in Germany, Europe’sbiggest economy, declined in November. Australia’s currencydropped after a report showed retail sales unexpectedlystagnated in November. The Philippine peso fell for a thirdday before a report on exports.

INR-USD – Up 0.46%

The INR closed with a gain of 25 Paise at 52.9450. Thedomestic currency was up 1.01% on the week.

Traders betting that the euro zone's sovereign debt troubleswill continue piled up a net $22.7 billion in wagers that thebeleaguered euro will decline as of Jan. 3, government datashowed Friday. That position represents the largest netgamble against the euro since at least 2007, with speculatorsholding a net 138,909 contracts, up 8% from the weekbefore, according to the Commodity Futures TradingCommission's weekly report on the commitments of traders.As traders bet against the euro, they also pulled theiroptimistic bets away from the dollar. The market held anet $15.5 billion position wagering that the dollar willappreciate, down 23% from the previous week. Where muchof that money has gone is into the yen: speculators arebetting a net $9.2 billion on a rise in the Japanese currency.That is a 154% increase from the previous week, or 56,481contracts. That position represents the flip side of themarket's desire to bet against the euro. For the Swiss franc,investors held a net $1.7 billion in bets that it will declinein value, up 15% from the prior week, or 12,355 contracts.(Dow Jones).

sharekhan currency watch

Major support is seen around Rs 52.69level. Resistance isat Rs 53.02.

Outlook – Bearish on the INR

INR- Euro – Up 0.91%

The Indian Rupee closed with a gain of 62.50 Paise at Rs67.71 vs. the single currency. The INR posted a gain of2.16% on the week as the Rupee gained against the USD,while Euro tumbled against the USD.

Euro-USD support is at 1.2740 followed by 1.2698 (Friday’slow). Major support is seen at 1.2660. Resistance is at1.2771/ 1.2858.

Outlook – Sell the Euro into rallies

INR-GBP – Up 0.83%

The INR closed with a gain of 0.69% at Rs 82.01. The INRgained 0.68% last week.

The GBP-USD pair has got a strong support at 1.5370 vs.the USD. Resistance is at 1.5468/ 1.5502.

Outlook – Sell GBP into rallies over USD

INR-JPY – Up 0.85%

The Indian Rupee closed with a gain of 59.25 Paise at Rs68.63. The domestic currency was up 0.57% on the week.

USD-JPY support is at 76.96 followed by 76.87. Resistanceis at 77.27.

USD likely to do outperform JPY, hence buy USD-JPY on dips.

4Commodities Buzz January 01, 2008For Private Circulation only

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