Contents For the week ended 30th Oct – 3rd Nov 2017

DOMESTIC MARKET Dollar Rupee Forward Market

INTERNATIONAL MARKET Euro Pound Sterling Yen Gold Market

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Domestic Market Weekly wrap up:

Domestic Market  Rupee closed the week at 64.5450 levels.  FX Reserves decreased to $398.761 bln as on Oct 27th from $399.921 bln.

Rupee opened the week on stronger note at 64.88 levels as all major crosses recovered against the Dollar. After an initial spike to its weekly low of 64.95 levels, the Indian unit started appreciating. The local currency unit was supported by positive sentiments in domestic equities. Further gains were limited as markets remained cautious ahead of the Federal Reserve’s policy meeting and imminent selection of the head at the US central bank. The news of Republican lawmakers introducing a bill on tax also supported the US Dollar. However, rupee appreciated sharply towards 64.50 levels as US Federal reserve kept interest rates unchanged. Also, US President Donald Trump nominated Jerome Powell as the new Federal Reserve Chairperson, who is seen as a more dovish candidate keeping interest rates low. He is seen as very much the continuity candidate and his thinking are very much allied to the status quo data-driven style at the Fed. His appointment reduced chances of a fast rate hike path thereby strengthening rupee against dollar. Rupee’s strength was also aided by persistent FII inflows in both Debt and equity markets leading rupee to its weekly high of 64.47 levels. However, possible RBI Intervention and opportunistic Dollar demand by importers limited the gains in rupee which closed the week at 64.545 levels.

For the week 06th Nov – 10th Nov 2017

Going Forward: Rupee is likely to open marginally weaker around 64.65-64.70 levels as Dollar regained towards the closing after Non-farm payrolls data. The U.S. economy added 261,000 jobs in October and the unemployment rate was 4.1 percent as labor conditions returned to normal following the storm-weakened September. The unemployment rate ticked lower to 4.1 percent against expectations that it would hold at 4.2 percent. In addition to the October growth, an initially reported decline of 33,000 for September was revised up to a gain of 18,000. August's count also was revised up from 169,000 to 208,000. The US Jobs report, albeit a little bit mixed, was still a relatively decent number pointing towards the positive trend, seen in payroll growth over the last several months and the last couple of years actually. In general, the US economy is moving along, though a little softer than many market participants anticipated. RBI intervention at lower levels along with Dollar buying by importers shall also pressurize rupee to weaken towards 64.80 levels. The price rise in India's biggest imported commodity -Crude oil - may also weigh on the rupee. However, markets are still witnessing huge FIIs inflows in both equity and debt markets which is negating any negative news. The rising equities along with buoyant mood in US equities after appointment of Jerome Powell as Fed Chair shall also provide support to the Indian currency. Also with US fed head announcement and monetary policy a done deal, markets shall start focusing on local factors, with the next major trigger being the local state elections in the states of Gujarat and Himachal Pradesh in next month.

Overall the Indian currency shall trade in a range of 64.40 to 65.00 levels with FII inflows and trend in Dollar globally being the major triggers for rupee movement. Advise: Importers are advised to keep covering their one month payable on rolling basis on dips towards 64.50-64.55 levels while Exporters are advised to wait for spikes towards 64.9065.00 levels to cover their short term receivables while wait for mid term exports for further spikes.


Forward Market 6 - month Premium (in Paisa)

Domestic Market Likely to move lower

6 month forward premia opened the week at its low of 143.00 paisa and taking support at these levels, the 6 month forward premia started to move higher and touched a high of 148.50 paisa. Facing resistance at these levels, the 6 month forward premia started to move lower and ended the week at 144.50 paisa. Going Forward: 6 month forward premia has given a bearish close on the short term charts signaling a downmove towards 140.00 and 135.00 paisa. A convincing break and close below the same shall push it to 130.00 paisa. On the upside, the 6 month forward premia faces resistance at 150.00 paisa. Technical indicators are signaling a bearish momentum. Key Support: 140.00, 135.00, 130.00 Key Resistance: 150.00, 153.00, 155.00


International Markets EUR/USD Euro closed the week at 1.1607 levels.

Technical

Euro: Euro opened the week at 1.1601 levels and soon weakened towards its weekly low at 1.1592 levels as the Euro nursed losses after the ECB meet and unrest in Spain's Catalonia after sacked president Carles Puigdemont called for peaceful "democratic opposition" to the central government's takeover of the region following its unilateral declaration of independence from Spain. Further, Friday’s release of third quarter GDP data showed the economy expanded by 3.0 percent helped the Dollar sentiment. However, the Euro soon strengthened towards 1.1661 levels on back of a weaker Dollar as investors took profits and grew cautious amid news that President Donald Trump's former campaign manager faces charges of conspiracy against the United States. Going ahead, the Euro remained broadly lower towards 1.1605 levels as investors eyes a policy decision from the US Federal Reserve where it was expected that the Fed will leave the interest rates unchanged. However, investors were closely watching for any new indications that the Fed will resume raising rates. After the Federal Reserve meeting, the Euro strengthened towards 1.1671 levels as the Fed left interest rates unchanged as widely expected, but further sharpened expectations for a year-end rate hike by highlighting "solid" economic growth and a strengthening labour market. Also with the appointment of a dovish candidate - Jerome Powell as next US Fed Chair, Dollar weakened against major crosses. With the release of Non farm payrolls Euro first increased to 1.1690 levels but a detailed analysis and improved unemployment rate helped Dollar to regain against Euro. Amid stronger dollar towards closing, Euro ended the week at 1.1607 levels. Technical Outlook:

Likely to move lower

Upcoming Events         

Factory Orders m/m(DE) Final Services PMI(DE) Final Services PMI(EU) Sentix Investor Confidence(EU) PPI m/m(EU) Industrial Production m/m(DE) Retail PMI(EU) Retail Sales m/m(EU) Trade Balance(DE)

Week ahead: Cross has given a bearish close on the short term charts signalling a downmove towards 1.1570 and 1.1530 levels. A convincing break and close below the same shall open up the gateway for a swift downmove towards 1.1460 levels. On its downmove, further support lies at 1.1345 levels. On the upside, key resistance lies at 1.1700 levels. Technical indicators are signalling the same bearish momentum. Key Support: 1.1530, 1.1460, 1.1345 Key Resistance: 1.1640, 1.1700, 1.1860 Advise: Exporters are advised to cover their near term receivables on spikes towards 1.1640 levels. Importers are advised to cover their near term payables on dips towards 1.1460 levels.


International Markets GBP/USD GBP closed the week at 1.3074 levels.

Technical

Sterling: The British currency opened the week flat at 1.3111 levels and strengthened above 1.3200 levels as the Bank of England was expected to hike rates in the later part of the week for the first time in a decade. On the other side, a sliver of weakness in the US Dollar has also helped Pound to sustain the reversal. The GfK consumer confidence data also came in line with the market expectations. Further, the UK households continued to borrow in Sept. to smooth out the squeeze on real incomes, BOE statistics showed. The net consumer credit dipped slightly to £1.6bln, higher than expected, indicating that the housing market is unlikely to pick up soon. This however limited the upside for the pound, but the markets continued to believe that there will be a rate hike coming by the BOE which enabled the Pound to zoom and touch a weekly high of 1.3319 levels. Moving ahead on to FOMC meeting, the Federal Reserve kept interest rates unchanged on Wednesday and pointed to solid U.S. economic growth and a strengthening labor market while playing down the impact of recent hurricanes, a sign it is on track to lift borrowing costs again in December. The US Dollar paired some gains to the basket of currencies. The Bank of England raised the interest rates from 0.25% to 0.50%, the first increase since July 2007. The BOE was expected to hike rates and presented a rosy and hawkish picture of the UK economy but while the BOE did deliver on the first promise, it didn't on the second one. The BOE infact indicated a gradual rate hike ahead sounding less hawkish and presented a grim reminder of the state of the UK economy. It pointed out how the Brexit was causing a lot of pressure on the UK economy and that the economy was still some way off the targets that the BOE had set. The Pound began its fall and crashed down to a low of 1.3037 level. Lastly, with the release of US non farm payrolls data, the U.S. economy added 261,000 jobs in October and the unemployment rate was 4.1 percent as labor conditions returned to normal following the storm-weakened September. With the release of Non farm payrolls GBP first increased to 1.3130 levels but a detailed analysis and improved unemployment rate helped Dollar to regain against major currencies. Amid recovery in Dollar towards the closing, Pound ended the week at 1.3074 levels. Technical Outlook:

Likely to move higher

Upcoming Events       

BRC Retail Sales Monitor y/y Halifax HPI m/m RICS House Price Balance Manufacturing Production m/m Goods Trade Balance Construction Output m/m Industrial Production m/m

Week ahead: Cross has formed a bullish pattern (inverted hammer) on the daily and weekly charts needing bullish confirmation while is strongly supported at 1.3030 levels. Given a bullish close on the daily charts, the pair is likely to move higher towards 1.3120 and 1.3230 levels. A convincing break and close above the same shall push it to 1.3330 levels. On the flipside, any break and close below 1.3000 levels shall open up the target towards 1.2850 levels. Technical indicators are signalling the same bearish momentum. Key Support: 1.3030, 1.3000, 1.2850 Key Resistance: 1.3230, 1.3330, 1.3400 Advise: Importers are advised to cover their near term payables on dips towards 1.3030 levels. Exporters are advised to cover their near term receivables in a staggered manner on spikes towards 1.3230 and 1.3330 levels.


Japanese Yen:

International Markets USD/JPY Yen closed the week at 114.06 levels.

Technical

The Japanese Yen opened the week at 113.72 levels and strengthened towards 113.01 levels against the Dollar with household spending in Japan showing a surprise gain and as investors looked ahead to a central bank review in Japan and a key PMI report out of China. Further, the Yen continued to strengthen towards its weekly high at 112.95 levels as markets were expecting the Fed to leave interest rates unchanged at the conclusion of its two-day policy meeting later on Wednesday, but investors were waiting for any indications that it will resume raising rates next month as expected, and the timing of any rate hikes in 2018. However, the Japanese yen soon weakened towards 114.27 levels as the Dollar remained broadly higher after robust U.S. private sector hiring data bolstered the outlook for Friday’s Non Farm Payrolls report. Further, strong Fed language in their policy was mixed with expectations that Jerome Powell will be named the next central bank chief, keeping policy in-line with current chair Janet Yellen. The Yen continued to remain weak on broad Dollar strength as the Bank of England raised rates for the first time in over a decade but mentioned that any future rate hikes would be very gradual and limited. With the appointment of a dovish candidate - Jerome Powell as next US Fed Chair, Dollar weakened against major crosses. With the release of Non farm payrolls JPY first increased to 113.64 levels but a detailed analysis and improved unemployment rate helped Dollar to regain against Yen. Amid stronger dollar towards closing, JPY weakened to its weekly low of 114.42 levels before ending the week at 114.06 levels. Technical Outlook:

Likely to move lower

Upcoming Events      

Monetary Policy Meeting Minutes Leading Indicators Core Machinery Orders m/m Current Account Economy Watchers Sentiment Tertiary Industry Activity m/m

Week ahead: The pair has given mixed signals on the short term charts while is facing stiff resistance at 114.50 levels. Given a bearish close on the daily chart initially the pair could move lower towards 113.00 levels. A convincing break and close below the same shall open up the gateway for a swift downmove towards 112.00 and 111.45 levels. On the flipside, any break and close above 114.50 levels shall open up the target towards 115.30 and 116.40 levels. Technical indicators are signalling the same bearish momentum. Key Support: 113.00, 112.00, 111.45 Key Resistance: 114.50, 115.30, 116.40 Advise: Exporters are advised to sell their near term receivables on dips towards 113.00 levels. Importers are advised to cover their near term payables on spikes towards 114.20 levels.


Gold

International Market Likely to move lower

Week Gone by: Gold opened the week at 1273.20 levels and initially touched a high of 1284.10 levels. Given a bearish close, the yellow metal started to move lower and touched a low of 1265.16 levels. The yellow metal ended the week at 1269.46 levels. Week Ahead: The yellow metal has given a bearish close on the daily and weekly chart signaling a downmove towards 1262.00 levels. A convincing break and close below the same shall push it to 1245.00 and 1230.00 levels. Further support lies at 1200.00 levels. On the upside, key resistance lies at 1282.00 and 1295.00 levels. Technical indicators are signaling a bearish momentum. Key Support: 1262.00, 1245.00, 1230.00 Key Resistance: 1282.00, 1295.00, 1315.00 Advise: Short term traders are advised to sell the yellow metal on spikes towards 1270.00 levels targeting 1245.00 and 1230.00 levels while keeping a strict stop loss above 1282.00 levels.


Forex Calendar Date

Forex Calendar

Time

Country

Data

Forecast

06/11/2017

05:20

JP

Monetary Policy Meeting Minutes

06/11/2017

12:30

DE

06/11/2017

14:25

06/11/2017

Previous

-

-

Factory Orders m/m

-1.0%

3.6%

DE

Final Services PMI

55.2

55.2

14:30

EU

Final Services PMI

54.9

54.9

06/11/2017

15:00

EU

Sentix Investor Confidence

31.2

29.7

06/11/2017

15:30

EU

PPI m/m

0.4%

0.3%

07/11/2017

05:31

UK

07/11/2017

12:30

DE

07/11/2017

14:00

UK

Halifax HPI m/m

07/11/2017

14:40

EU

Retail PMI

07/11/2017

15:30

EU

Retail Sales m/m

0.6%

-0.5%

08/11/2017

01:30

US

Consumer Credit m/m

18.4B

13.1B

08/11/2017

10:30

JP

Leading Indicators

106.7%

107.2%

09/11/2017

05:20

JP

Core Machinery Orders m/m

-1.9%

3.4%

09/11/2017

05:20

JP

Current Account

2.05T

2.27T

09/11/2017

05:31

UK

4%

6%

09/11/2017

10:30

JP

50.6

51.3

09/11/2017

12:30

DE

Trade Balance

23.1B

21.6B

09/11/2017

19:00

US

Initial Jobless Claims

231K

229K

10/11/2017

10:00

JP

-0.1%

-0.2%

10/11/2017

15:00

UK

0.3%

0.4%

10/11/2017

15:00

UK

-12.9B

-14.2B

10/11/2017

15:00

UK

-0.6%

0.6%

10/11/2017

15:00

UK

0.3%

0.2%

BRC Retail Sales Monitor y/y Industrial Production m/m

1.9% -0.7%

2.6%

0.2%

0.8% 52.3

RICS House Price Balance Economy Watchers Sentiment

Tertiary Industry Activity m/m Manufacturing Production m/m Goods Trade Balance Construction Output m/m Industrial Production m/m


As the global economy picks up, inflation is oddly quiescent But central banks are beginning to raise interest rates anyway

Column of the Week

A FEW years ago, the news about the euro-zone economy was uniformly bad to the point of tedium. These days, it is the humdrum diet of benign data that prompts a yawn. Figures this week show that GDP rose by 0.6% in the three months to the end of September (an annualised rate of 2.4%). The European Commission’s economic-sentiment index rose to its highest level in almost 17 years. Yet when the European Central Bank’s governing council gathered on October 26th, it decided to keep interest rates unchanged, at close to zero, and to extend its bond-buying programme (known as quantitative easing, or QE) for a further nine months. The central bank said it would slow down the pace of bond purchases each month, to €30bn ($35bn) from January. But Mario Draghi, the bank’s boss, declined to set an end-date for QE. A hefty dose of easy money will be necessary, he argued, until inflation durably converges on the ECB’s target of just below 2%. It shows few signs of doing so, despite the economy’s strength. Underlying, or core, inflation, which excludes the volatile prices of food and energy, fell from 1.1% to 0.9% in October, according to data published a few days after the ECB meeting. The euro zone’s miseries of 2010-12 were unique. But in its present, happier state of vigorous activity, low inflation and easy monetary policy, it is like many other big economies (see chart). After a decade of interest rates at record lows, those central banks that are inclined to tighten policy naturally attract attention. The Bank of England’s monetary-policy committee raised its benchmark interest rate from 0.25% to 0.5% on November 2nd, the first increase since 2007. On the same day, the Czech National Bank raised interest rates for the second time this year. The Federal Reserve kept interest rates unchanged this week, having raised them in March and June, but a further increase is expected in December. In Turkey, perhaps the only big economy that is obviously overheating, the central bank—which has been browbeaten by the president, Recep Tayyip Erdogan, who believes high interest rates cause inflation—opted on October 26th to keep interest rates on hold. Yet in most biggish economies, underlying inflation is below target (see chart) and monetary policy is being relaxed. Brazil’s central bank cut interest rates on October 25th from 8.25% to 7.5%. Two days later, Russia’s central bank trimmed its main interest rate, to 8.25%. This week the Bank of Japan voted to keep rates unchanged and to continue buying assets at a pace of around ¥80trn ($700bn) a year. These economies are gathering strength. It is a puzzle that, in such circumstances, global inflation is stubbornly low. For the week 6th Nov – 10th Nov 2017

To figure out why, consider the model that modern central banks use to explain inflation. It has three elements: the price of imports; the public’s expectations; and capacity pressures (or “slack”) in the domestic economy. Start with imported inflation, which is determined by the balance of supply and demand in globally traded goods, such as commodities, as well as shifts in exchange rates. Commodity prices have picked up smartly from their nadir in early 2016. The oil price, which fell below $30 a barrel then, has risen above $60. This has put upward pressure on headline inflation: in the euro zone it is 1.4%, half a percentage point higher than the core rate. Where inflation is noticeably high, it is generally in countries, such as Argentina (where it is 24%) or Egypt (32%), that have withdrawn costly price subsidies and whose currencies have fallen sharply in value, making imported goods dearer. In Britain, rising import prices linked to a weaker pound have added around 0.75 percentage points to inflation, which is 3%.


A second influence on inflation is the public’s expectations. Businesses will be more inclined to push up their prices and employees to bid for fatter pay packets if they believe inflation will rise. How these expectations are formed is not well understood. The measures that are available are broadly consistent with the central bank’s inflation target in most rich economies. Japan is something of an outlier. It has struggled to meet its 2% inflation target in large part because firms and employees have become conditioned to expect a lower rate of inflation. Japan’s prime minister, Shinzo Abe, recently called for companies to raise wages by 3% in next spring’s wage round to kick-start inflation. Leave aside the transient effects of import prices, and inflation becomes a tugof-war between expectations and a third big influence, the amount of slack in the economy. The unemployment rate, a measure of labour-market slack, is the most-used gauge. As the economy approaches full employment, the scarcity of workers ought to put upward pressure on wages, which companies then pass on in higher prices. On some measures, Japan’s labour market is as tight as it has been since the 1970s. America’s jobless rate, at 4.2%, is the lowest for over 16 years. Inflation has nevertheless been surprisingly weak. In other words, the trade-off between unemployment and inflation, known as the Phillips curve, has become less steep. A paper last year by Olivier Blanchard, of the Peterson Institute for International Economics, found that a drop in the unemployment rate in America has less than a third as much power to raise inflation as it did in the mid-1970s. The central banks that see a need for tighter monetary policy are worried about diminishing slack. There are tentative signs of stronger pay pressures in Britain and America, and firm evidence of them in the Czech Republic, where wage growth is above 7%. Even so, with inflation expectations so steady, the flatter Phillips curve suggests that the cost for central banks in higher inflation of delaying interest-rate rises is rather low. The ECB is quite a way from such considerations. The unemployment rate is falling quickly, but remains high, at 8.9%. There is still room for the euro-zone economy to grow quickly without stoking inflation. The dull routine of good news is likely to continue.

Source: The Economist


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Disclaimer: While care has been taken in compiling this publication, Greenback Advisory Services Pvt. Ltd, is unable to take any liability for the accuracy of its contents or any consequences of any reliance which might be placed on it. Risk Disclosure: Any information presented by Greenback Advisory Services Pvt. Ltd should be in no way understood as an offer, promise or guarantee for receiving a profit or avoiding the losses. Stated here levels of support and resistance must not be construed as an investment advice or endorsement for any financial instrument. There exists no guarantee that the market would behave in accordance with the information stated here Prepared by Greenback Advisory Services Pvt. Ltd.
