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Expert View: Rupee outlook on Friday

Source : MF Global
Last Updated: Fri, Feb 24, 2012 04:08 hrs
​Decoding the mystery behind the rupee's fall

Market Recap:

Feb USDINR closed at 49.23, down 9 paise. Spot USDINR closed at 49.19 from 49.23 and traded the range of 49.13-49.32. USDINR opened firm tracking the weakness in domestic equity indices. Oil companies led dollar demand provided a bit of support for the pair. But importer dollar demand was overwhelmed as participants cut long positions noting the German IFO fed strength in EURUSD.

Separately FM Mukherjee said that the government was concerned about the widening current account deficit gap, which as per Prime Ministers Economic Advisory Council's report is expected to widen to 3.60% in 2011-12 from 2.70% in previous fiscal.

Overseas, after a rather range bound Asian session, US dollar came under downward pressure against the majors following a good showing on German IFO data. German Feb Ifo business climate survey was at 109.6 against the forecast at 108.8 from 108.3 in Jan. Business expectations rose to 102.3 from 100.9 previously (mkt:102). The current situation sentiment indicator improved to 117.5 from 116.3 vs. forecast at 116.5.

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The German IFO led rally fueled EURUSD to two and a half month high near 1.3350. But soon met resistance following the release of EU commission forecast report. The report estimates that the eurozone would experience a mild economic recession and that economic output would contract by 0.3% from earlier forecast of a growth of 0.5% growth. It pointed out that the divergence in economic growth is likely to be more pronounced with those struggling with debt and bailouts and forced with more austerity measures witnessing sharper contraction in economy.

On US front, weekly jobless claims stayed unchanged over prior week at 351000 but were lower than forecast for 354K. With continuing claims also dropping a bit, overall the data was viewed favorably. US dollar's reaction to US Fed Fisher's

comments was muted. Fisher said that US economic data was indicating signs of improvement, even though labor market remained sluggish. He said that considering this he saw no need for another round of monetary easing or the QE part 3. He also added that the US FOMC statement was basically indicating that the low rate regime would stay in place as long as it was 'practical'.

Meanwhile on European front, ECB chief Draghi said that the central bank still maintained its inflation targeting mandate and that even though there were some signs of stability returning to EZ economy, there were no signs of inflationary tendencies for the moment and infact the prices were indicating quite the opposite.

On USDJPY front, where the pair has risen steadily by early 2% to Thursday's close at 80.18 level, since BoJ's meet last week where the central bank for the first time mentioned an explicit inflation target. That and the comments from Government officials about the govt and the central bank working closer to avoid deflation has added to speculations over a combination of monetary easing measures along with covert FX intervention.

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BoJ at its meet last week also has increased asset purchase program.

Market Outlook:

Spot USDINR has opened at 49.09 from 49.19 Thursday and was trading at 49.08. USDINR is likely to trade in 48.90-49.30 range.

At the session start, USDINR could weaken slightly tracking a similar move in USD against the majors and Asian units. Market participants are unlike seen building up on long USDINR positions for the concerns of sudden increase in inflows towards the commodity exchange MCX IPO. Today is the last day for MCX ipo subscription.

Overseas, focus turns to G-20 meet over the weekend. Considering the rather divided opinions over providing financial aid through IMF for Europe, it is likely that the meet might not end up throwing any significant results. IMF which plans to raise its funds to 600 billion dollars from the present 386 billion dollars has pleaded the international community for more contribution. These pleas have met resistance from US, varying responses but no firm commitments from any of the BRIC countries.

Technical Trades Outlook:

USDINR: Support at 49.1, 48.83 Resistance at 49.37, 49.58, 49.73. Currently in a consolidation trend ranging 48.83 to 49.75. For the day will need a break and sustain below 49.1 for INR to strengthen against USD failing which high potential seen for a test of higher end of the range at 49.73

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EURINR: Support at 65.3, 64.8, 64.3 Resistance 66.1, 66.35, 67.1. As per projection downside were being held at key supports on decline and has been advancing gradually targeting 66.35 / 66.64 but will need a close above 66.64 to confirm a build up of sustained higher move and break out from consolidation

GBPINR: Support at 77.15, 76.7 Resistance at 77.91, 78.4, 78.9, 79.65. Trend is in consolidation, ranging 77.15 to 78.9. For the day initial rise to 77.91 to resist and trade sideways

JPYINR: Support at 61, 60.56 Resistance at 62.2, 63.2, 63.8. The momentum for downside seems quite strong, rallies to resist at 62.2 and continue lower towards 60.56

EURUSD: Support at 1.332, 1.3266, 1.323 Resistance at 1.3402, 1.3458, 1.353. As anticipated Euro has been trading firm, for the day downside seen protected at 1.3266-1.323 zone and continue higher towards 1.3402 / 1.3458


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