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Expert View: Rupee outlook on Friday

Source : MF Global
Last Updated: Fri, Sep 21, 2012 04:16 hrs
Cashier counts currency notes inside bank in Lucknow

Market Recap:

Sept USDINR closed at 54.34, up 26 paise from Tuesday. USDINR closed at 54.39 from 54.01 on Tuesday and traded the range of 54.20-54.41

USDINR opened firm with market participants wary of a possible delay in economic reforms considering the political woes for the government.

Two way interest in USDINR was noted and kept the pair in a range as oil companies bought dollar for month end requirements while exporters on other hand sold US dollar under 54.50 resistance. On options front: Sept 2012: Showed substantially high Put option open interest buildup at 55.75 strike with +143k contracts. Maximum Call option open interest buildup is at 54.00 strike with +136K contracts . Put options with strike 55.75 saw maximum increase in OI for the session at +10K contracts, while those with strike at 54.25 saw sharpest decline in OI at 34K contracts. Call options with 55.00 strike saw maximum increase for the day at +10K contracts and those with strike at 54.50 saw sharpest decline in OI for the day by 19K.

Overseas, a string of PMI data showed that the major industrialized economies were still in the economic contraction phase and brought back the weak fundaments back into focus spurring risk off sentiment. With regards to EZ, the data was particularly poor, with the exception of Germany and highlighting the two-paced growth in the 17-nation currency bloc. While there was some relief on Spanish front as the 10-year yields fell in an auction, it was counter balanced later through downwards budget, and growth estimates revision by Italy.

On US front, the key worrying point was a larger than expected increase in weekly jobless claims. While a more durable version compared to volatile weekly number, the continuing claims fell, there are concerns that it might simply be the case of unemployed applicants giving up hope and dropping out.

US dollar after having declined following market stimuli from major central banks, ticked higher against other majors as spot light turned to weaker fundamentals.

EURUSD: Closed at 1.2966 from 1.3047 and traded in 1.2918-1.3058 range.

GBPUSD: Closed at 1.6213 from 1.6219 and traded the range of 1.6162-1.6235

USDJPY: Closed at 78.23 from 78.35 and traded in 78.01-78.45 range.

Market Outlook:

Spot USDINR has opened at 54.14 from 54.39 and was trading at 54.10. USDINR could trade in 53.90-54.50 range with choppy bias. For USDINR, support is likely from the firm US dollar against the majors. But on domestic front, a steadyfast resolve on the government's part to push through reforms for growth and fiscal consolidation will weigh on USDINR.

For domestic market participants, focus remains on the domestic developments on political front. It is expected that the cabinet ministers from former key government ally TMC, might submit their resignation. The largest ruling party in the government though has not budged on its announcements of fuel price hikes or economic reforms even after a nationwide strike (which evoked mixed response) was called on Thursday. The government issued formal notifications with regards to foreign direct investments in various sectors from retail to broadcasting. Meanwhile the government was also considering a massive debt recast for power distribution companies, seen in longer term supportive of infrastructure development.

A strong stance from the government on pushing through with difficult economic decisions is seen supportive of investment outlook for India, in turn encouraging higher fund flows and benefit rupee in turn. Seperately there were reports that government and a major UK-based telecom company may seek a middle ground over the payment of retrospective taxation issue, an ammendment brought about in Union budget for 2012-13 in March and which has a huge negative impact on the fund inflows thereafter.

Markets in the short term will also be focused on the likely political combinations which are cobbled up and if the existing UPA manages to garner required to numbers of seats in the event of confidence vote.

Technical Trades Outlook:

USDINR: Support at 53.90, 53.50, 52.90 Resistances at 54.60, 55.00

Price is likely to trade sideways in the range of 53.90-54.60 levels.

EURINR: Support at 70.15, 69.80 Resistances at 71.35, 71.90

Price has been able to sustain above the support of 70.15 levels, only a decline below which would lead to further declines.

GBPINR: Support at 87.40, 86.90 Resistances at 89.00, 89.50

A price decline below the support of 87.40 would lead to the test of support towards 86.90 levels.

JPYINR: Support at 68.50, 68.10 Resistances at 69.75, 70.50

Price rebounded from the support of 68.00 levels. However, on upside 69.75 remains a strong resistance. A move above which, would indicate strength.

EURUSD: Support at 1.290, 1.2770 Resistances at 1.3060, 1.3120, 1.3170

A price decline below the support of 1.290 would lead to further declines towards 1.2770 levels. On upside, 1.3060 would act as resistance for the day.

USDJPY: Support at 78.00, 77.50, Resistances at 78.95, 79.25

Price is witnessing resistance at 79.00 levels. Only a move above 79.00 levels would indicate strength. On downside, 78.00 remains good support.

GBPUSD: Support at 1.6140, 1.610 Resistances at 1.630, 1.6325,

Until price manages to sustain above the support of 1.6140 levels, price may attempt testing the resistance of 1.630 levels


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