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Expert View: Rupee outlook on Thursday

Source : MF Global
Last Updated: Thu, Oct 11, 2012 04:09 hrs
A grocery shop owner counts rupees in the western Indian city of Ahmedabad

Market Outlook:

Spot USDINR has opened at 53.08 from 53.03 and was trading at 53.08. USDINR could trade in 52.80--53.25-53.60 range. Likely that USDINR could drift higher at session start, noting US dollar's gains versus the euro overnight.

S&P's warning about a possible 1 in a 3 chance that India's credit ratings could be lowered over next 24 months and it ratings cuts for country's largest public sector bank has supported USDINR. S&P currently has a BBB-Minus ratings with a negative outlook on India.

As the euphoria over government's reform overdrive settles, the focus turns to actual implementation of these reforms through passage of the proposed bills through the winter session of parliament. Focus also remains on the increased rhetoric from key ruling coalition allies about a likely early Union government election before the UPA completes its term in 2014. The element of political uncertainty remains supportive of USDINR.

USDINR is also likely to get support as US dollar has been creeping steadily higher overseas as Eurozone debt continue. Overseas, risk off sentiment and in turn safe haven currencies like US dollar and yen remain supported as ratings major S&P has cut Spain's sovereign ratings to BBB-Minus from BBB-Plus, just a notch above the junk status.

S&P's ratings cut was announced fairly late in US session and the focus will remain on how European markets react on opening, a little later today. Benchmark 10-year Spanish bond yield settled at 5.80% Wednesday down 0.28% on session. Besides this the uncertainty over whether and when Spain will make a official request for financial aid too remains as the country remains concerned over the likely pre-conditions which will be put forth by the ECB. As S&P's report details put it with local elections approaching and provincial governments facing financial problems, rising pressures are "likely to limit" the central government's policy options.

Post S&P's ratings downgrade for Spain, attention shift's to Moody's review , expected some time in Oct. In June 2012, Moody's cut Spain's ratings to just one notch above non-investment grade at Baa3 from A3 and warned that it could reduce the country's ratings further to junk status in three months. Possible Moody's action of reducing Spain's ratings to non-investment grade would further force the borrowing costs higher for the country and support risk off bets.

TECHNICAL TRADE VIEW:

USDINR: Support at 52.60, 52.20, 51.90 Resistances at 53.25, 53.60, 53.90 Only a sustained move 53.25 would push prices higher towards 53.60 levels. On flip side, failure to hold above the support of 52.60 would lead to price weakness.

EURINR: Support at 67.50, 67.00, 66.70 Resistances at 68.70, 69.00 Price is likely to attempt testing the strong resistance of 68.70 levels. On downside, 67.50 would act as support on declines.

GBPINR: Support at 83.10, 82.30 Resistances at 84.80, 85.30, 85.70 Price witnessed a rally from retracement support as expected. Price is likely to trade sideways to higher towards 85.30 levels.

JPYINR: Support at 67.30, 66.50 Resistances at 68.50, 69.00 Price is likely to trade sideways to higher towards 68.50 levels.

EURUSD: Support at 1.2790, 1.2710 Resistances at 1.2910, 1.3010 Price would turn weak only if it declines below the supports of 1.2790 and 1.2710 levels. A move above 1.2910 would indicate strength.

USDJPY: Support at 77.90, 77.50 Resistances at 78.30, 78.60, 79.00 77.90 remains good support, only a decline below which would lead to further weakness. Price need to trade above 78.30 to indicate strength.

GBPUSD: Support at 1.5970, 1.590 Resistances at 1.6050, 1.6090, 1.6140, Price is hovering near 1.5970 levels, indicating support there. However, a move above 1.6050 would lead to price rally towards 1.6090 levels


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