Expert View: Rupee outlook on Thursday

Market Recap:

July USDINR closed at 54.76, down 9 paise . Spot USDINR closed at 54.51 from 54.38 and traded the range of 54.17-54.85. USDINR witnessed a roller coaster move Wednesday. A gradual strengthening in US dollar against the majors on one hand and spurts of dollar inflows in domestic market towards SEBI's govt debt limit auction kept the pair in a choppy mode. During the day there was market chatter that the government may consider removing the withholding tax for foreign funds on their investment in local government debt and had led to a sharp slide in the pair during the session.

Separately a report said that the government had asked the state run banks to reduce bulk deposits to 10% of the total and CDs to 5 percent by September to.improve asset-liability management .

Overseas currencies market saw US dollar gradually grinding its way higher against the majors and other currencies. Services PMI data from China, UK and Eurozone reflected a subdued growth while that from India showed expansion but at moderating pace. EZ retail sales for May rose by 0.6% after remaining flat in previous month and against forecasts for a decline by 1%. Separately, Italy's 1Q deficit to GDP ratio expanded sharply to 8.0% from 3.80% and was at highest level since 2009. France meanwhile in an effort to adjust the extra 7.20 billion euros required to balance budget announced 1.50 billion in spending cuts and increased taxes and increased taxes on dividends and oil companies. France aims to contain budget deficit to 4.50% of GDP in 2012 vs. 5.20% last year. Its growth projections though have been revised lower to 0.3% from 0.5% campaign promises of President Hollande.

Meanwhile there were reports that Spanish bank aid may be delayed until July 20 from July 9 when the memorandum of understanding was to be signed as the EZ group awaited the assessment report from EC, ECB and IMF. US dollar rose at a faster pace into late European session as trade volumes dimmed with US closed for a holiday.

EURUSD: Closed at 1.2524from 1.2606 and traded in 1.2507-1.2606 range.

GBPUSD: Closed at 1.5583 from 1.5685 and traded the range of 1.5690-1.5573.

USDJPY: Closed at 79.85 from 79.76 and traded in 79.58-79.87 range

Market Outlook:

Spot USDINR has opened at 54.79 from 54.51 and was trading at 54.90. USDINR likely to trade in 54.30-55.10 range. USDINR is expected to trade choppy with bullish bias tracking the overnight gains in US dollar against other currencies at the start of today's session. Today's focus stays on the key central bank meetings later in the day. The European Central Bank is expected to further reduce it key interest rate by 25bps from present historic low at 1.00%. There is an agreement among many market participants that a further rate cut from the present historic low may not suffice to turn around the sagging growth in the 17-nation currency bloc. Such a move would act more as a signal to markets that the measures continue to taken to stabilize the economy. On the UK front, Bank of England is expected to opt for increasing the asset purchase target by 50 billion pounds to 375 billion and maintain its key rate at historic low of 0.50%. Bank of England has in past few weeks stepped up on measures to support the financial system in the country. BoE through its extended collateral term repo facility or ECTR lent 5 billion pounds on June 20. The tenure of loans through ECTR were extended to 6 months from 30 days. BoE has hinted that it may ease the rules about the high liquidity buffers maintained by the banks, which is expected to free about 140-150 billion pounds for lending. BoE also hopes that another 80 billion pounds may be offered as a credit targeted at the small and medium businesses under its funding for lending scheme.

While monetary easing on UK and EZ fronts, should actually benefit US dollar against the euro and pound sterling, the rally in the green back may be contained if equity markets rally post announcement of such measures.

Technical Trades Outlook:

USDINR: Support at 54.00, 53.50 Resistances at 55.00, 55.50

54.00 remains the strong support on downside, only a decline below which would drift the price lower. Price is likely to witness a bounce towards 55.00-55.50 levels.

EURINR: Support at 68.00, 67.50 Resistances at 69.00, 69.50,

68.00 to act as good support on downside, from which it could bounce towards 69.00-69.50 levels in the near term.

GBPINR: Support at 85.00, 84.30, Resistance at 86.00, 87.00

85.00 remains good support, above which price may try to rebound towards 86.00 levels.

JPYINR: Support at 67.00, 66.00 Resistances at 69.00, 70.00

Price is likely to trade sideways in the range of 67.50-69.00 levels.

EURUSD: Support at 1.250, 1.2430 Resistances at 1.2610, 1.270

1.250 remains strong support, only a break below which would drift the prices lower. For the day, Price could trade sideways in the range of 1.250-1.260.

USDJPY: Support at 79.50, 79.00 Resistances at 80.00, 80.50

Price continues to trade in the range of 79.00-80.00 levels. A clear break above or below this levels would decide further direction.

GBPUSD: Support at 1.550, 1.5450 Resistances at 1.5640, 1.570

1.550 to act as a support on downside, from where it may witness a bounce towards 1.5640 and 1.570 levels in the near term.