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Last week: O –53.69 H – 53.91 L – 52.68 C – 53.63 Expected range: 52.50 – 54.50
Prior weekly Recap:
The Rupee remained extremely volatile for most parts of the past 5 trading sessions. After beginning the week at 53.6850, the Rupee rallied over 90 paise on Monday on the back of suspected intervention by RBI and also due to an announcement by the central bank to (1). Increase the cap on interest rates which is offered by banks on NRI deposits [FCNR (B)] and (2). Deregulation of the ceiling rate on export credit in foreign currency. The Rupee pared most of its early week gains, sliding from Tuesday’s high of 52.6750 to as low as 53.9050 on Thursday, weighed down by strength in Dollar overseas coupled with sharp slide in domestic equities. However, the domestic currency rebounded strongly off its weekly low and rose to as high as 52.95 on Thursday, in reaction to an announcement from RBI that exporters will have to sell 50% of their foreign currency held in EEFC (Exchange Earner’s Foreign Currency) account into Rupee within a period of 2-weeks from the date of circular issuance (i.e. from May 10th). Nevertheless, global strength in Dollar, weaker cues from domestic equities, and an unexpectedly weaker IIP data [A: -3.5%; P: +4.1%; F: +1.7%] weighed in on the Rupee and dragged the currency towards 53.60 levels on Friday.
Looking Ahead:
Looking ahead, immediate focus this week will remain on the release of April WPI data later today. Expectations are for inflation to ease down slightly to 6.64% versus a reading of 6.89% in March. With the IIP data showing contraction in industrial activity, slide in inflation numbers is likely to increase speculation of rate cuts by the RBI, which in turn could offer some support to domestic equities and Rupee. However, if inflation prints higher-than-expectations, domestic equities are likely to extend their recent decline further, which in turn could weigh in on Rupee to retest prior weekly low of 53.90 levels. Meanwhile, movements in the Rupee will also be closely impacted by news flows from US and Euro zone. There are hosts of crucial data lined up for release this week from both EU and US. The outcome of these events will be a key factor that would determine whether or not Dollar will hold on to its recent gains against the G7 basket. In case, Euro zone crisis continues to escalate while US data print stronger, it would be extremely supportive to US Dollar and will limit upside in Rupee. However, a move beyond 54.00 is not expected this week as fears of further intervention by RBI is likely to persist.
Last week, USDINR bounced back right off the 52.65 support (23.6% retracement of 48.50 to 53.90). The weekly RSI has flattened out at the overbought zone while the stochastic line has inched closer towards its signal line from the overbought area. Based on this, we expect any upside in the pair to be contained at 53.92 (weekly upper Bollinger band), which if manages to hold, a corrective decline towards 53.00/52.65 can be expected. However, break and stability above 53.92 will negate this view and open door for a test of 54.30 record high.
Weekly Strategy:For Importers: Last week, we achieved both our targets of 53.30 and 52.85. This week, as mentioned above, immediate bias in USDINR will remain cautiously to the downside given the aggressive stance by RBI to prevent further depreciation in Rupee. Based on this, we recommend importers to partially cover their imports due in this week at 53.30 and the balance at 52.85, while keeping a close eye on 53.92 levels.
For Exporters: Last week, we were stopped out at 52.85 levels. For the current week, we recommend exporters to partially cover their exports at 53.78 and the rest can be booked at 53.92, while keeping a close eye on 53.30 levels.
- Dollar Index stabilized above the psychological 80 levels last week as demand for the US currency increased on the back of broad-based risk aversion across the global markets.
- Euro traded below the psychological 1.3000 levels for most parts of the week, as demand for the single currency eased on the back of concerns that Greece could exit Euro area
- Bank of England left both its benchmark rate and asset purchase program unchanged at 0.50% and GBP 325 billion respectively.
- Yen stayed underneath the 80 handle for most parts of the week, as traders sought the safety of Japanese currency noting escalating worries over Euro zone.
- Australian Dollar inched closer towards parity against the Greenback weighed down by rising speculation that RBA could cut rates further to support Australian economy.
- Bond auctions in Spain/Italy/Germany, GDP reports from across Euro zone, and political situation in Greece are the key events that would determine directions in Euro this week.
- Over in the US, focus will remain on the release of consumer inflation, retail sales, FOMC meeting minutes, and Philly Fed manufacturing index reports.
Sentiment: Positive
Last week: O –79.94 H – 80.33 L – 79.53 C – 80.30 Expected range: 79.00 – 81.50
The Dollar strengthened against the G7 basket last week as demand for the safety of US currency accelerated on the back of worsening Euro zone uncertainties. This was simultaneously accompanied by lack of QE3 speculation from the US, which in turn benefited the Greenback. This in turn lifted the US unit off its early week low of 79.53 to as high as 80.33 on Friday, which was its strongest reading since the past 2-months. There were very few economic reports that came out from US last week and as such, movement in the US currency was largely driven by news flows from across the globe – particularly from Europe. Speaking of data releases, US jobless claims dipped by 1k to 367k last week; while trade balance deficit widened to $51.8 billion in March as compared with a deficit of $45.4 billion in February, weighed down by a 5.2% rise in imports due to increasing demand for crude oil and electronic items. Meanwhile, the prelim UoM consumer sentiment unexpectedly improved to 77.8 in May as compared with a reading of 76.4 in April.
The Dollar performed markedly well during the prior week as demand for the US unit intensified on the back of Euro zone worries. Most of the political uncertainties in Euro zone have showed no signs of easing and this in turn is likely to continue supporting the Dollar in the near-term as traders dump riskier assets in favor of safer ones. As of now, expectation of QE3 is seen as the only threat that could halt the recent rally in Dollar. There are some noteworthy events lined up for release from the US this week which in turn could shed in some clarity about the health of world’s largest economy. This includes some noteworthy data releases as well such as consumer inflation, retail sales, TIC inflows, FOMC minutes, and Philly Fed/Empire State manufacturing index. Movement in the Dollar is likely to be impacted based on how these reports print in. Should most of these reports print stronger, it is likely to lower QE3 speculation and extend DXY rally possibly towards 81.00/81.50 levels. However, if the data disappoints, QE3 speculation is likely to resurface which in turn could drag the index towards 80.00/79.60 levels. However, with Euro zone worries remaining on the forefront, we would remain bullish on the Dollar this week and expects any downside to be contained at 79.50 levels.
This Week Key Events/Developments:Tuesday: Core CPI m/m, Core Retail Sales m/m, Retail Sales m/m, TIC Long-Term Purchases; Wednesday: Building Permits, FOMC Meeting Minutes; Thursday: Unemployment Claims, Philly Fed Manufacturing Index.
Technical Perspective: DXY Index broke above the neckline of double bottom chart pattern, in turn completing this pattern. Based on this, should the index establish stability above the neckline of 80.10, immediate bias will flip to the upside with possible targets then seen at 80.75 (March high) followed by 81.60 (pattern target). However, break and stability below 80.10 will negate this view and extend slide towards 79.95 (5-daily EMA) followed by 79.45 (55-daily EMA).
Sentiment:
Last week: O – 1.2961 H – 1.3066 L – 1.2905 C – 1.2916 Expected range: 1.2650 – 1.3150
The Euro stayed under considerable stress during the prior week as traders dumped the EU unit on every possible rally due to fears over the future of Euro zone. The single currency stayed under pressure right from the beginning of week, gapping down below the psychological 1.3000 levels on the back of the outcome of weekend elections in France and Greece. Over in France, Francois Hollande defeated Nicolas Sarkozy in the second round of French presidential election race after having pledged to push for less austerity and more growth in the Euro area’s second largest economy. This in turn created worries that he would not be supporting German chancellor Merkel’s stance of more austerity to curb EU crisis. Over in Greece, citizens decided to vote for anti-bailout parties, which in turn supported the nation’s youngest leader – Alexis Tsipras’s left coalition party to surprisingly come in the second place. This coupled with the failure of New Democracy & Syriza party to form a coalition government led to expectations that there would be new elections in June. All these factors weighed in quite heavily on the Euro, in turn dragging down the single currency from its early week high of 1.3066 to as low as 1.2905 on Friday, which was its weakest reading since January 23rd 2012.
The Euro is likely to remain under severe pressure in the near-term as the debate of Greece exiting the 17-member area continues to persist. With New Democracy and Syriza party failing to form a coalition government last week, the task to form the government is now shifted to the Pasok party led by Evangelos Venizelos. If he fails to form a coalition government, it would all but certainly lead to fresh election in June. This in turn would trigger further uncertainties surrounding the future of Greece in the Euro zone. Recent polls from Greece have estimated that the Syriza party could come in first place if fresh elections are held next month. This would be extremely negative to Euro as Syriza party would all but certainly cancel out the bailout terms put forth by the Troika, which in turn would effectively lead to Greece defaulting on its debt obligations. All such underlying uncertainties are likely to keep the Euro under pressure and limit the upside towards 1.3000/1.3080 levels. On the data front this week, there are a lot of events lined up for release. This includes industrial production, GDP from across the 17-member Euro area, German ZEW economic sentiment, consumer inflation reports. On the auction front – Spain, Italy, and Germany are scheduled to sell the benchmark 10-year notes this week. All these events are likely to keep Euro extremely volatile during the week and any disappointments here could pressurize the single currency to extend its losses towards 1.2800/1.2700 levels.
This Week Key Events/Developments: Tuesday: German ZEW Economic Sentiment.  Technical Perspective: EURUSD is trading just above the rising support line which is currently seen at around 1.2890 levels. The weekly RSI and stochastic is below the equilibrium zone and pointing at bearish momentum. Based on this, should the pair break and stabilize below 1.2890, immediate bias will flip on the downside with possible targets then seen at 1.2732 (weekly lower Bollinger band) followed by 1.2625 (Yearly low). However, break and stability above 1.3000 levels will negate this view and extend advance in the pair possibly towards 1.3080 (May 4th low).
Sentiment:Last week: O –1.6118 H – 1.6199 L – 1.6060 C – 1.6060 Expected range: 1.5800 – 1.6300
The Sterling moved in a relatively narrow band against the Greenback last week as strength in the Dollar against most of it major traded counterparts was largely offset by safe haven demand for GBP amidst on-going Euro zone crisis. Besides this, the Sterling was also boosted by an upbeat manufacturing production report [A: +0.9%; F: +0.5%; P: -1.1%] and decision by the BOE to maintain asset purchase program unchanged at GBP 325 billion. All these factors in turn offset strength in Dollar overseas, in turn confining Sterling’s movements between 1.6060 on the downside and 1.6199 on the upside for virtually all week long. Meanwhile, besides leaving the asset purchase program unchanged, the BOE also maintained its interest rate at 0.50%, both of which were in line with market expectations. Meanwhile, amongst other data releases from UK, RICS House Price Balance fell -19% in April from -11% in March, while BRC Shop Price Index printed at +1.3% during the same period as compared with a reading of +1.5% in March.
Despite of broad-based risk aversion across the globe, the Sterling managed to trade with a relatively upbeat bias against the USD last week as traders sought allure in the UK unit due to lack of safe haven alternatives amongst the major European units. This week, all eyes will remain on the labour reports which would be released from the UK. This includes claimant count change and unemployment rate, both of which are scheduled to be released from the UK. Stronger reading is likely to support the Sterling extend its advance back towards its 8-month high of 1.6300 levels. However, should the data disappoint, speculation of QE is likely to gather momentum, which in turn could pressurize Sterling slide back towards the psychological 1.6000 levels. Meanwhile, BOE governor King is also scheduled to present his inflation report, in which he would be disclosing the central bank’s projection for inflation and economic growth during the next 2 years. This in turn would offer close hints about the likely BOE monetary stance and as such would be important for determining the movements in Sterling.
This Week Key Events/Developments:- Wednesday: Claimant Count Change, BOE Governor King Speaks, BOE Inflation Report.
Technical Perspective: GBPUSD has been unable to extend its advance beyond the 200-weekly EMA of 1.6290 levels, which in turn could possibly mean that a temporary top is in place. Instead, the pair is currently seen finding support at the 5-weekly EMA of 1.6084. The weekly RSI and stochastic have lost their bullish momentum and started to point lower. Based on this, should the pair stabilize below 1.6084, immediate bias will flip to the downside with possible targets seen at 1.6000 (psychological level) followed by 1.5942 (100-weekly EMA). However, strong support is seen at around 1.6049 (23.6% retracement of 1.5234 to 1.6301), which if manages to hold, a steady rally back towards 1.6290 can be witnessed.
Sentiment: Positive
Last week: O – 79.82 H – 80.08 L – 79.43 C – 79.91 Expected range: 78.50 – 81.25The Yen rallied against the Dollar below the psychological 80 levels last week as traders continued to find refuge in the Japanese unit noting escalating political uncertainties in Euro zone. This in turn bolstered the Japanese unit advance to its fresh 2.5-month high of 79.43 on Wednesday. However, the Yen pared some of its gains towards the end of week to inch back towards the psychological 80 levels on Thursday weighed down by easing risk aversion across the globe. Besides this, the Yen was also partially weighed down by comments from BOJ board member Sayuri Shirai that the BOJ has to keep a close eye on movements in Yen and possibly, act if needed. Meanwhile, amongst the data releases from Japan, current account surplus narrowed down slightly to JPY 0.79 trln in March from JPY 0.86 trln in February.
News flows from across the Euro zone will remain the crucial factor that would determine further directions in the Yen. Should political uncertainties continue to exist, demand for Yen will remain firm from traders across the globe, which in turn would limit any downside in JPY to 80.00/80.50 levels. However, in case global risk aversion eases, there is likely to be strong unwinding of short USD positions, which in turn is likely to pressurize Yen to fall back to 81.00 levels. Meanwhile, political situation in Japan will also be crucial factor that would determine near-term directions in Yen. There will be pressure on the BOJ to act in the forex markets in case Yen starts to strength back towards 79.00 levels. Such intervention speculation is likely to cap any notable strength in Yen in the near-term. On the data front, major focus this week will remain on the release of Q1 prelim GDP data. It is expected to post a +0.9% expansion in January – March quarter as compared with a -0.2% contraction seen in October – December quarter.
This Week Key Events/Developments:- Thursday: Prelim GDP q/q.
Technical Perspective: USDJPY traded below the 55-weekly EMA of 80.01 for most parts of last week. The weekly oscillators are pointing at strong bearish momentum in the pair. Based on this, immediate bias will continue remaining on the downside with possible targets seen at 79.43 (May 9th low) followed by 79.14 (61.8% retracement of 76.02 to 84.18). However, sustained break and stability above 80.01 will negate this view and turn bias back to the upside for a possible move up to 81.06 (38.2% retracement of the same move).
Sentiment: Last week: O –0.9266 H – 0.9307 L – 0.9194 C – 0.9297 Expected range: 0.9000 – 0.9500
The Swiss Franc traded inside a relatively narrow band last week as traders continued to refrain from building positions in the Swiss currency due to persisting fears that SNB would intervene to curb CHF strength. However, with the Dollar strengthening across the board, the Franc too remained under pressure right from the beginning of week, sliding from Monday’s high of 0.9194 to as low as 0.9307 on Friday, which was its weakest print since the past 1-month. Meanwhile, against the Euro, Franc moved in an extremely tight 10 pips band between 1.2005 on the downside and 1.2015 on the upside. Amongst the data releases from Switzerland, consumer price index rose +0.1% in April which was well below the market expectations and prior reading of +0.2% and +0.6% respectively.
The current week is relatively light on data releases as far as Switzerland is concerned. As such, movements in the Franc will be largely driven based on news flows from Euro zone. With lack of safe haven alternatives, traders could find allure in Swiss Franc in case Euro zone political uncertainties intensify further. This in turn is likely to keep Euro under pressure against the Franc and retest the 1.20 floor rate. However, with the SNB looking more determined than ever in protecting this floor, we do not expect any sharp decline in EURCHF this week as fears of unlimited SNB intervention is likely to persist. Against the Dollar, the Franc is likely to remain under pressure especially if QE3 speculation does not resurface and US data releases continue to print stronger. However, any weakness in Franc is likely to be contained at 0.9400 levels, which has been held on strongly since the past several weeks.  Technical Perspective: USDCHF has traded inside a relatively narrow band since the past several sessions. However, the pair has stayed above its 55-weekly EMA of 0.9115. Besides this, weekly oscillators are showing at upside momentum in the pair. Based on this, immediate bias will continue remaining on the upside this week with possible targets seen at 0.9350 (100-weekly EMA) followed by 0.9485 (weekly upper Bollinger band). However, break below 0.9175 (21-daily EMA) will negate this view and flip back lower for a test of 0.9115 support.
Sentiment:
The Australian Dollar tumbled from Monday’s high of 1.0220 to fresh yearly low of 1.0018 on Friday, as traders cut their long-holdings from the high-beta Australian unit. This was in reaction to broad-based sell-off in global equities and also due to sharp decline in gold prices. Moreover, the Aussie was also pressurized by comments from Australian PM Gillard that “returning to budget surplus will give RBA maximum room for further rate cuts”. This in turn largely outweighed stronger-than-expected Australian building approvals [A: +7.4%; F: +3.2%; P: -8.8%] and retail sales data [A: +0.9%; F: +0.3%; P: +0.3%], thereby sending the Aussie crashing down towards parity. However, upbeat employment change [A: +15.5k; F: -4.8k; P: +37.6k] and unemployment rate [A: 4.9%; F: 5.3%; P: 5.2%] reports from Australia prevented the Aussie from slipping below the psychological 1.0000 levels. Looking ahead, RBA monetary policy meeting minutes is the only noteworthy data scheduled for release this week. Any hint in the minutes regarding further rate cuts is likely to pressurize Aussie slide below parity. Besides this, movements in Aussie will also be impacted based on risk flows prevailing across the globe.
The Canadian Dollar came under pressure against the Greenback last week, sliding from its early weekly high of 0.9921 to as low as 1.0063 on Wednesday, which was its weakest print since the past 3.5-months. The intraweek weakness in Loonie was largely on the back of strength in US Dollar as traders sought towards the safety of Greenback noting escalating uncertainties across Euro zone. Besides this, sharp slump in crude oil prices also weighed in quite heavily on the Loonie. Meanwhile, housing reports from Canada were relatively stronger than what the markets had anticipated for. This included Building permits [A: +4.7%; F: -0.5%; P: +7.6%], Housing Starts [A: 245k; F: 204k; P: 215k], and NHPI [A: +0.3%; F: +0.2%; P: +0.3%]. Looking ahead, the economic calendar from Canada is relatively empty this week with consumer inflation being the only economic report scheduled for release. As such, movements in Loonie will continue to be driven by news flows from Euro zone and US. Any further sign of deterioration in global economic outlook is likely to weigh in on commodities such as crude oil, which in turn could pressurize Canadian Dollar for a third consecutive week.
This Week Key Events/Developments:- Tuesday: AUD Monetary Policy Meeting Minutes; Thursday: NZD PPI Input q/q; Friday: CAD Core CPI m/m.
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