Contents For the week ended 19th Feb – 23rd Feb 2018

DOMESTIC MARKET Dollar Rupee Forward Market

INTERNATIONAL MARKET Euro Pound Sterling Yen Gold Market

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Domestic Markets Weekly wrap up:

Domestic Market  Rupee closed the week at 64.7300 levels.  FX Reserves increased to $421.72B from $419.76B as on 16th Feb’18.

Monday being a holiday, the Indian Rupee started off the week at 64.50 levels on Tuesday and immediately made a weekly high of 64.41 levels. Reason behind the strength could be attributed to sustained dollar selling by exporters and banks. However, this strength in the currency could not be withhold for long; pushing the Indian currency towards north owing to foreign funds outflows from the local markets. Also, persistent demand of dollars by the importers coupled with strong dollar overseas added to the woes. This weak trend in the currency was carried forward on the next day too due to gains in the US Treasury yields prior to the release of FOMC Meeting Minutes that was to be released later in the day. On Thursday, the Indian Rupee made a gap up opening at 65.06 levels owing to bearish trend in the local equities following a $1.8 billion bank fraud case involving Punjab National Bank. Moreover, markets discounted the release of FOMC Meeting Minutes where the committee hinted at the possibility of a tighter Fed over time which kept the global dollar on the higher side and the Rupee weak. Furthermore, continuous dollar demand from importers added to the woes. Rupee made a weekly low of 65.1075 levels. On the last trading day, the Indian Rupee appreciated a bit owing to lower dollar overseas amid a slight pullback in the U.S. treasury yields overnight. RBI too seemed to be intervening in the currency markets to stem sharp weakness. Also, positive sentiments in Asian and local equities gave support to the local currency. USDINR closed the week at 64.73 levels on Friday.

For the week 26th Feb – 2nd Mar 2018

Going Forward: Being a holiday shortened week, the coming week could see Rupee swinging both ways from 64.40 to 65.30 levels. Reason behind this volatile swing could be attributed to the recent scam involving Punjab National Bank and the taxation of LTCG in equities, which has already weakened the Indian Rupee and is likely to keep it weaker in the coming days. Rupee shall open the week around 64.90 levels and continue to keep the trade weak. Markets are witnessing persistent Dollar demand from importers as lots of importers are not able to take advantage of buyer’s credits. This along with month end demand from importers shall keep the rupee weak. Also, news of another fraud by Diamond merchant in Oriental Bank of Commerce with the modus operandi again based on LoU shall keep the Dollar demand from India high and keep rupee weak. However, RBI shall continue to intervene to curb sharp weakness. In the mid-week, there is an important economic data releases from India - the GDP growth rate which is expected to come lower than the previous quarter levels that could further act as a negative factor for Rupee. Also, there are many important economic datasets to be released from the US next week which could guide the price trend of the global dollar, in turn, influencing the Indian currency. Not forgetting, the Legislative Elections in Tripura that has already begun wherein the final outcome is expected to be released on March 3rd, 2018. Hence, there could be a possibility the Indian currency could react to the opinion polls during this period thereby keeping traders on the cautious side. Also, month-end roll-overs in the derivative markets could add to the jitters. Nevertheless, sharp losses in the local currency could be capped on back of dollar selling by exporters and possible RBI intervention at higher levels.

Advise: Exporters are advised to cover their near term receivables on spikes towards 65.00-65.20 levels. Importers are advised to cover their near term payable (One month) on dips towards 64.40-64.60 levels.


Forward Market 6 - month Premium (in Paisa)

Domestic Market

6 month forward premia opened the week at 145.00 paisa and initially moved higher to touched a high of 146.25 paisa. Facing resistance at these levels, the 6 month forward premia breached its key supports and touched a low of 129.25 paisa. 6 month forward premia ended the week at 133.00 paisa. Going Forward:

Likely to move lower after a blip

6 month forward premia has given a bearish close on the weekly charts but has given a bullish close on the daily chart signalling an upmove initially towards 138.00 and 143.00 paisa. Facing resistance at these levels the 6 month forward premia shall move lower towards 130.00 and 125.00 paisa. Technical indicators are signalling a bearish momentum. Key Support: 130.00, 125.00, 120.00 Key Resistance: 138.00, 143.00, 147.00


International Markets EUR/USD Euro closed the week at 1.2293 levels.

Technical Likely to move lower

Euro: The Euro currency mostly traded lower this week. It started off the week at 1.2409 levels and immediately made a weekly high of 1.2435 levels. Reason behind the same could be attributed to the initial weakening of the American currency over the on-going fears surrounding the US Treasury yields which gave support to the Euro. This strength in the Euro continued on the next day too on account of the robust release of the Economic Sentiment data from Germany that came better than the expected levels. However, the trend in the shared currency later got reversed and the Euro started to plunge as markets remained cautious ahead of the policy minutes from the US and the Euro Area that was to be released later in the week. In the mid-week, the shared currency plunged all the more lower owing to the disappointing release of manufacturing and service data from Germany and France which dented the market sentiments in turn keeping the Euro lower. Furthermore, the release of FOMC Meeting Minutes that had a hawkish tone added to the woes. Apparently, the committee sees increased economic growth and an uptick in inflation as justification to continue to raise interest rates gradually. This boosted the demand for the US Dollar Index which acted as a negative factor for the shared currency. This negative trend in the Euro continued on Thursday too; all thanks to the disappointing release of ECB Monetary Policy Meeting Minutes. The committee argued that it was premature to signal policy normalization given weak inflation numbers. This pushed the Euro currency lower to weekly levels of 1.2258. On the last trading day, the currency pair became stable after the US Federal Reserve released a key monetary policy report that stated that the employment scenario looks pretty much good however there are problems related to wage rise which could affect the inflation rates in future. This affected the US Treasury yields which were pulled lower in turn weakening the American currency thereby providing temporary support to the Euro which later closed the week a bit lower at 1.2293 levels on Friday. Technical Outlook:

Upcoming Events        

Final Manufacturing PMI(EU) Unemployment Rate(EU) PPI m/m(EU) Prelim CPI m/m(DE) GfK Consumer Climate(DE) Unemployment Change(DE) Final Manufacturing PMI(DE) Retail Sales m/m(DE)

Week ahead: Cross has given a bearish close on the daily and weekly charts signalling continuation of the downmove towards 1.2200 levels. Further break could see the pair testing 1.2090 levels, its strong support. Only a convincing break and close below the same shall open up the gateway for a swift downmove towards 1.2000 and 1.1930 levels. Else the pair could take support at 1.2090 levels and resume its upmove towards 1.2330 and 1.2460 levels. Technical indicators are signalling the same bearish momentum. Key Support: 1.2200, 1.2090, 1.2000, 1.1930 Key Resistance: 1.2330, 1.2460, 1.2555, 1.2650 Advise: Exporters are advised to cover their near term receivables on spikes towards 1.2450 levels. Importers are advised to cover their near term payables in a staggered manner on dips towards 1.2150 and 1.2100 levels.


International Markets GBP/USD GBP closed the week at 1.3965 levels.

Technical Likely to move lower after a spike

Sterling: The Cable currency traded in a volatile manner this week. It started off the week at 1.4032 levels and immediately made a weekly high of 1.4049 levels owing to weak global dollar and optimism surrounding the Brexit negotiations. Apparently, the European Parliament wanted a more flexible approach to negotiation talks with Britain than the current one. Markets felt that such a move could make the transition deal a bit easier. This boosted the demand for the Sterling Pound. This bullish trend continued on the next day too but there were bumps of weakness seen at times as markets remained cautious ahead of the policy minutes from the US that was to be released later in the week. In the mid-week, the Cable currency declined owing to the disappointing release of Jan’18 unemployment rate from Britain that came at 4.4 percent from the previous month’s rate of 4.3 percent which dented the market sentiments. Moreover, the release of FOMC Meeting Minutes pulled the Pound all the more lower. Apparently, the committee sees increased economic growth and an uptick in inflation as justification to continue to raise interest rates gradually. This boosted the demand for the US Dollar Index which acted as a negative factor for the Pound currency. This negative trend in the Sterling Pound continued on Thursday too which pushed the currency pair lower to weekly levels of 1.3855. On the last trading day, sharp losses in the currency were capped and the Pound currency became a bit stable. Reason behind the same could be attributed to the release of a key monetary policy report by the US Federal Reserve who stated that the employment scenario of US looked pretty much good however there were problems related to wage rise that could affect the inflation rates in future. This affected the US Treasury yields which declined in turn weakening the American currency. Also, news of the UK PM’s reported agreement with her cabinet on a future trading relationship with the EU further acted as a positive factor. GBPUSD closed the week at 1.3965 levels on Friday. Technical Outlook:

Upcoming Events     

High Street Lending GfK Consumer Confidence Nationwide HPI m/m Manufacturing PMI Construction PMI

Week ahead: Cross has given a bullish close on the daily chart while is still indicating bearishness on the weekly charts signaling an upmove initially towards 1.4150 levels. A convincing break could push it to 1.4270 and 1.4350 levels. However, any resistance towards 1.4150 or 1.4270 levels could prompt the pair to reverse back towards 1.3850 and 1.3760 levels. Only a convincing break and close below the same shall open up the gateway for a swift downmove towards 1.3650 levels. Technical indicators are signalling the same bearish momentum. Key Support: 1.3850, 1.3760, 1.3650, 1.3520 Key Resistance: 1.4150, 1.4270, 1.4350 Advise: Importers are advised to cover their short term payables on dips towards 1.3850 levels. Exporters are advised to cover their near term receivables in a staggered manner on spikes towards 1.4150 and 1.4220 levels.


International Markets USD/JPY Yen closed the week at 106.88 levels.

Technical Likely to move higher

Japanese Yen: The Japanese unit opened the week at 106.32 levels and initially traded towards its weekly high at 106.08 levels as strength persists after BOJ Governor Haruhiko Kuroda was reappointed on Friday for another five-year term in a show of confidence in his ultraeasy monetary policy, boosting Tokyo stocks. The reappointment signaled continuity of stimulus measures, a key part of Prime Minister Shinzo Abe's economic policies. Further, Asian markets were higher following Wall Street gains, as market jitters showed signs of easing. However, the Japanese unit soon gave up its strength towards 107.90 levels, its weekly low, as Japanese manufacturing activity expanded at a slower pace in February as growth of new export orders slowed due to the yen’s appreciation, showing the corporate sector remains highly sensitive to currency market moves. The yen's appreciation prompted a flurry of comments from Japanese policymakers attempting to talk down their currency. Japanese policymakers and companies tend to speak unfavourably of a strong yen because this can lower exporters' earnings and increase deflationary pressure by reducing import prices. Further, weakness in the Yen continued as the dollar continued its rebound from three-year lows on the view that the U.S. currency was due a correction after a brutal sell-off. However, the Yen rebounded once again towards 106.50 levels as the Dollar's rally ran out of steam, and the yen soared as heightened volatility led investors to favor the Japanese currency. The yen tends to benefit during times of heightened volatility as Japan is the world's biggest creditor nation and there is an assumption that Japanese investors will repatriate funds should a crisis materialize. Further, the yen showed little reaction to data which showed Japan's annual core consumer inflation rate was unchanged in January from the previous month, reinforcing views that the Bank of Japan remains distant from exiting its super loose monetary policy, closing the week at 106.88 levels. Technical Outlook:

Upcoming Events           

BOJ Core CPI y/y Prelim Industrial Production m/m Retail Sales y/y Housing Starts y/y Capital Spending q/y Final Manufacturing PM Consumer Confidence Household Spending y/y Tokyo Core CPI y/y Unemployment Rate Monetary Base y/y

Week ahead: The pair has given mixed signals on the daily chart while has formed a bullish pattern on the weekly charts needing confirmation. Given a bullish close the pair is likely to inch higher towards 107.30 and 108.30 levels. Only a convincing break and close above 108.30 levels shall push it to 109.80 -110.00 levels. On the downside, key support lies at 106.00 and 105.50 levels. Technical indicators are signalling a bullish momentum. Key Support: 106.00, 105.50, 105.00 Key Resistance: 107.30, 108.00, 109.80 Advise: Exporters are advised to sell their near term receivables on dips towards 106.00 levels. Importers are advised to cover their near term payables on spikes towards 108.00 levels and cover further tenors if any spike towards 109.80 levels.


Gold International Market Likely to move lower

Week Gone by: Gold opened the week at 1347.12 levels and initially touched a high of 1350.96 levels. Given a bearish close, the yellow metal started to move lower and touched a low of 1320.61 levels. The yellow metal ended the week at 1328.87 levels. Week Ahead: The yellow metal has given a bullish close on the daily charts while has given a bearish close on the weekly charts. Hence, initially the yellow metal is likely to move higher towards 1335.00 and 1345.00 levels. Facing resistance at these levels, the yellow metal shall resume its downmove targeting 1300.00 levels. Only a convincing break and close below the same shall push it to 1285.00 levels. Technical indicators are signaling the same bearish momentum. Key Support: 1320.00, 1300.00, 1285.00 Key Resistance: 1335.00, 1345.00, 1365.00

Advise: Short term traders are advised to sell the yellow metal on spikes towards 1340.00 levels targeting 1300.00 and 1285.00 levels while keeping a strict stop loss above 1365.00 levels.


Forex Calendar Date

Forex Calendar

Time

Country

Data

Forecast

Previous

26/02/2018

15:00

UK

High Street Lending

37.2K

36.1K

26/02/2018

20:30

US

New Home Sales

655K

625K

27/02/2018

10:30

JP

BOJ Core CPI y/y

-

0.7%

27/02/2018

All Day

DE

Prelim CPI m/m

0.5%

-0.7%

27/02/2018

19:00

US

Core Durable Goods Orders m/m

0.4%

0.7%

27/02/2018

19:00

US

Fed Chair Powell Testifies

-

-

27/02/2018

19:00

US

Durable Goods Orders m/m

-2.4%

2.8%

27/02/2018

19:00

US

Goods Trade Balance

-72.3B

-72.3B

27/02/2018

19:30

US

HPI m/m

0.4%

0.4%

27/02/2018

20:30

US

CB Consumer Confidence

126.2

125.4

28/02/2018

05:20

JP

Prelim Industrial Production m/m

-4.1%

2.9%

28/02/2018

05:20

JP

Retail Sales y/y

2.6%

3.6%

28/02/2018

05:31

UK

GfK Consumer Confidence

-10

-9

28/02/2018

10:30

JP

Housing Starts y/y

-4.5%

-2.1%

28/02/2018

12:30

DE

GfK Consumer Climate

10.8

11.0

28/02/2018

14:25

DE

Unemployment Change

-17K

-25K

28/02/2018

19:00

US

Prelim GDP q/q

2.5%

2.6%

28/02/2018

19:00

US

Prelim GDP Price Index q/q

2.4%

2.4%

28/02/2018

20:30

US

Pending Home Sales m/m

0.4%

0.5%

01/03/2018

5:20

JP

Capital Spending q/y

3.1%

4.2%

01/03/2018

6:00

JP

Final Manufacturing PMI

54.0

54.0


Forex Calendar

01/03/2018

10:30

JP

Consumer Confidence

44.9

44.7

01/03/2018

12:30

UK

Nationwide HPI m/m

01/03/2018

14:25

DE


60.3

60.3

01/03/2018

14:30

EU


58.5

58.5

01/03/2018

15:00

UK

Manufacturing PMI

55.1

55.3

01/03/2018

15:30

EU

Unemployment Rate

8.6%

8.7%

01/03/2018

19:00

US

Core PCE Price Index m/m

0.3%

0.2%

01/03/2018

19:00

US

Personal Spending m/m

0.2%

0.4%

01/03/2018

19:00

US

Initial Jobless Claims

226K

222K

01/03/2018

19:00

US

Personal Income m/m

0.2%

0.4%

01/03/2018

20:15

US


55.9

55.9

01/03/2018

20:30

US

Fed Chair Powell Testifies

-

-

01/03/2018

20:30

US

ISM Manufacturing PMI

59.0

59.1

01/03/2018

20:30

US

Construction Spending m/m

0.2%

0.7%

01/03/2018

20:30

US

ISM Manufacturing Prices

70.5

72.7

02/03/2018

05:00

JP

Household Spending y/y

-0.3%

-0.1%

02/03/2018

05:00

JP

Tokyo Core CPI y/y

-

0.7%

02/03/2018

05:00

JP

Unemployment Rate

2.8%

2.8%

02/03/2018

05:20

JP

Monetary Base y/y

9.2%

9.7%

02/03/2018

12:30

DE

Retail Sales m/m

0.9%

-1.9%

02/03/2018

15:00

UK

Construction PMI

50.5

50.2

02/03/2018

15:30

EU

PPI m/m

0.4%

0.2%

0.6%


A bloodbath in US Treasuries is the next worry for Asia Column of the Week

It’s not clear what Donald Trump plans, but any leader who thought they had a rapport with the mercurial US leader—be it Shinzo Abe, Narendra Modi or Moon Jae-in—should brace for the worst What’s $145 billion between friends? Narendra Modi may be wondering as his bromance with Donald Trump risks costing India some real money. The reference here is to New Delhi’s store of US Treasury securities. It has the eighth biggest pile of foreign exchange reserves, and it’s Asia’s No. 5 dollar holder. What’s interesting, though, is the extent to which India’s dollar hoard grew in 2017—by 23%, almost twice as fast the increase by Beijing. China’s purchases are getting lots of attention now. Not just because it’s Washington’s biggest banker, but because it’s going in the opposite direction of banker No. 2: Japan. Whereas China added $127 billion to its Treasuries heap in 2017 (India added $27 billion), Japan scaled back to the tune of $30 billion. Yet, before long, officials in Beijing and New Delhi will realize Tokyo is on to something. Part of Japan’s trepidation is the Federal Reserve. It’s still deeply perplexing that President Donald Trump showed Janet Yellen, one the best Fed chairs the US ever had, the door. Trump’s pick, Jerome Powell, is a wild card. Japanese Prime Minister Shinzo Abe’s government will be scrutinizing Powell’s every syllable when he speaks before Congress on 28 February. Adding to the uncertainty: how a new Fed leader reacts to recent jumps in US wage and inflation data. The even bigger threat is Trump himself. His fiscal promiscuity worries Abe’s foreignexchange managers in Tokyo. Trump’s Republican Party is borrowing $1.5 trillion from future generations to give a tax cut to billionaires today, one the economy doesn’t need. It’s “fiscal overkill”, as strategists Krishna Guha and Ernie Tedeschi of Evercore ISI in Washington put it. Next up: Trump’s $4.4 trillion budget proposal and plans to roll out a titanically large infrastructure plan. While this White House may be “conservative”, its spending ambitions would make socialists blush—and creditors nervous. China, it’s worth noting, has been on to Washington’s profligate ways for some time now. As far back as March 2009, Beijing was voicing explicit warnings to US lawmakers. The breaking point: budget-busting bailouts to stem the fallout from Wall Street’s near collapse. “We have made a huge amount of loans to the United States,” then-Premier Wen Jiabao said. “Of course, we are concerned about the safety of our assets. To be honest, I am a little bit worried.” He called on Washington “to honour its words, stay a credible nation and ensure the safety of Chinese assets.” Wen’s concerns proved prescient. In August 2011, Standard & Poor’s yanked away America’s AAA rating, shaking global markets.


So why are his successors—Premier Li Keqiang and President Xi Jinping—upping their US exposure? For now, it’s about capping a rising yuan. But that strategy may be futile as Trump scraps a 23-year-old strong dollar policy. Last month, US treasury secretary Steven Mnuchin made clear that Trump’s past comments about the yuan/dollar exchange rate “killing” and “raping” us were not aberrations. The yen is the most obvious example of collateral damage, surging 6.5% versus the dollar so far this year. But any further drops in the dollar will boost bond yields, raising many an eyebrow in Beijing, Tokyo and New Delhi. The real turmoil, though, could come from the goods-and-services trade channel. On 22 January, Trump put some meat on the bones of a trade-war strategy he telegraphed on the campaign trail. The first wave—tariffs on imported solar panels and washing machine—was but a flesh wound. It’s a harbinger of bigger action aimed not just at China, but Asia in general. Particularly ominous are Trump’s threats of “reciprocal tariffs” even on what he terms “so-called allies”. It’s not clear what Trump plans, but any leader who thought they had a rapport with the mercurial US leader—be it Abe, Modi or South Korea’s Moon Jae-in—should brace for the worst. Modi, for example, could cut India’s losses and sell Treasuries. But that would surely enrage Trump, putting India in his line of fire. And China could easily retaliate with exit taxes on goods manufactured on the mainland, by clamping down on the operations of foreign companies or dumping its $1.2 trillion of Treasuries. There’s also reason to worry that Trump’s pre-White House tactics will colour his judgement. In his property-developer days, Trump filed for Chapter 11 bankruptcy protection at least four times. Somehow, Trump kept a straight face in June 2016 when he said: “I’m the king of debt. I’m great with debt. Nobody knows debt better than me. I’ve made a fortune by using debt, and if things don’t work out, I renegotiate the debt. I mean, that’s a smart thing, not a stupid thing.” Washington’s Asian bankers may disagree, especially since Trump has hinted at doing the same as president. Where that leaves Xi, Abe and Modi as 2018 unfolds is anyone’s guess as the Trump risk mounts. But hey, what’s $145 billion between pals? William Pesek, based in Tokyo, is a former columnist for Barron’s and Bloomberg and author of Japanization: What the World Can Learn from Japan’s Lost Decades.

Source: Live Mint


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