Motilal Oswal Financial Services

Monday, May 19, 2014

Major Global Currencies % change for the week

3.00%

2.50%

2.00%

1.50%

1.00%

0.47%

0.50%

0.00%

Dollar

Index

USDINR

EURUSD

EURINR

GBPUSD

GBPINR

USDJPY

JYPINR

EURGBP

0.18%

0.21%

0.19%

0.35%

0.16%

0.32%

2.32%

2.54%

Rupee strengthened to its highest level in 11 months

and posted its best weekly gain in eight months as the

BJP and its allies headed towards an overwhelming

majority in the country's elections. Foreign investors

have pumped in over Rs 1 lakh cr in the Indian stock

market since Narendra Modi was announced as the PM

candidate by BJP in September last year. In 2014

alone, FIIs have infused a net amount of over

Rs.74,000 Cr in the domestic market, which included

more than Rs.41,000 Cr in equities and nearly

Rs.33,000 Cr in the debt.

US dollar traded high against major global currencies

last week, after the report showed that US housing

starts rose 13.2% last month, after a 2.0% increase in

March. It was the largest increase in five months,

indicating that the economy is shaking off the effect of

a weather related slowdown over the winter. The

upbeat housing data was overshadowed by a report

showing that consumer confidence in the US

deteriorated this month. The University of Michigan's

consumer sentiment index dropped to 81.8, from 84.1

the month before.

Rupee Vs Domestic Forex Reserves

315

310

305

300

295

290

285

280

Source: Reuters

India Forex Reserves

USDINR

FII Flows weekly

40000

30000

20000

10000

-10000

Source: Reuters

Please refer to the disclaimer at the end of the report.

USDINR:

Rupee rallied to 11-month high of 58.79 against the

dollar last week, on the hopes of higher FII’s inflows

as election results showed a clear majority to NDA and

a stable government at the Centre. FII’s have pumped

in more than Rs 1 lakh cr in the Indian stock market

since Narendra Modi's anointment as the BJP's PM

candidate. Also the forex reserves rose by $1.97b to

$313.8b for the week ended May 9, led by a sharp

jump in overseas currency assets as shown by the RBI

data. Also the stable government has build in hopes

that India can growth at the rate of 6.5% to 7% in

2015-16.

On the technically front, as expected USDINR fell

sharply last week and closed near Rs.59.00 level.

Strong resistance on the upside is at Rs.60.00/60.55

whereas Rs.58.50 could act as a strong support. As

long as below Rs.60.00/60.55, major trend remains

down and selling on rise is advisable. Fall below

Rs.58.50 could confirm the weakness for the next leg

downward towards Rs.58.00/57.90 levels.

Indian Election 2014 Results

350

300

250

200

150

100

NDA

UPA

AAP

OTHERS

INC

43 58

144

BJP 337

283

EURINR:

Euro was lower against the dollar last week. Euro

remained under pressure after weak data on euro

zone Q1 growth added to pressure on the ECB to ease

monetary policy at its next meeting in June, in order

to safeguard the recovery in the region. The euro

zone’s GDP grew just 0.2% in the Q1, compared to

expectations for growth of 0.4% and expanded by a

smaller than expected 0.9% from a year earlier. Also,

French economy stagnated in the first three months of

the year, while Italy, Portugal and the Netherlands all

reported

contractions.

Meanwhile,

Germany’s

economy, the euro zone largest, outperformed in the

first three months of the year, expanding 0.8%,

beating expectations of 0.7%. The annual rate of

inflation also remained unchanged at 0.7% in April,

which is still well below the ECB target of close to but

just under 2%, adding to the pressure.

Technically, EURINR fell sharply last week and closed

near Rs.80.90 level. The pair has strong resistance on

the upside at Rs.82.20/82.50 while strong supports

are placed at Rs.80.60/79.10 level. As long as below

82.50, selling on rise is advisable.

CPI (YoY)

1.5

0.5

0.8

0.6

0.4

0.2

Source: Reuters

CPI (YoY)

ECB Rate Decision

Please refer to the disclaimer at the end of the report.

GBPINR:

GBP was marginally lower against the dollar last week.

Pound remained low after the BOE played down

speculation over the timing of possible rate hikes,

saying the economic recovery was still at an early

stage. The BoE left its forecasts for growth and

inflation unchanged in its quarterly Inflation Report

and indicated that it is still in no rush to hike interest

rates. The bank said there is scope to further reduce

the amount of slack in the economy before hiking

rates and reiterated that when rates did start to rise

they would do so only gradually. Also, UK

unemployment rate dropped to 6.8% in the three

months to March, down from 6.9% in February but

average wages rose by a weaker than expected 1.7%

in the first quarter from the same period a year

earlier.

Technically, GBPINR has strong support near

97.50/98.05 while strong resistance is at 99.75/100.70

level. Short term trend looks weak and selling on rise

is advisable for the downside target of Rs.97.70/97.50.

Only move above 100.80 would be the first trend

reversal sign.

Unemployment Change

10000

-10000

-20000

-30000

-40000

-50000

Source: Reuters

Claimant Count

Unemployment Rate

JPYINR:

Yen was higher against the dollar last week. The yen

jumped against the dollar after stronger than expected

Q1 GDP data that was boosted by a spending spree

ahead of a sales tax hike to 8% from 5% that took

effect April 1. Japan preliminary real GDP for the Q1

rose 1.5%, compared to a 1.0% gain expected. In the

week ahead, investors will be looking to the minutes

from the Fed's latest monetary policy meeting, due for

release on Wednesday, for insight on the central

bank's view of the economy. And BOJ’s monetary

policy decision on Wednesday will also be in focus.

Technically, JPYINR has strong support near

Rs.58.80/57.75 level. The pair is relatively stronger

than the other pairs and looks to trade sideways to

positive as long as Rs.57.75 is held on the downside.

Immediate target or strong resistance on the upside is

at Rs.58.80/59.60/60.00 level.

Japan 's GDP v/s CPI

1.5

0.5

-0.5

-1

-1.5

Source: Reuters

CPI

GDP

Please refer to the disclaimer at the end of the report.

Weekly Economic Data

Cur.

Event

Tuesday, May 20

EUR

GBP

German PPI (YoY)

German PPI (MoM)

CPI (MoM)

CPI (YoY)

Wednesday, May 21

JPY

EUR

GBP

Exports (YoY)

Imports (YoY)

Trade Balance

Current Account

Current Account n.s.a.

Core Retail Sales (MoM)

Core Retail Sales (YoY)

Retail Sales (MoM)

Retail Sales (YoY)

Thursday, May 22

CNY

EUR

GBP

USD

Chinese HSBC Manufacturing PMI

French Manufacturing PMI

French Services PMI

German Manufacturing PMI

German Services PMI

Manufacturing PMI

Services PMI

GDP (YoY)

GDP (QoQ)

Initial Jobless Claims

Manufacturing PMI

Existing Home Sales

Mild

High

Mild

Imp

Please refer to the disclaimer at the end of the report.

Friday, May 23

EUR

USD

German GDP (QoQ)

German GDP (YoY)

German Business Expectations

German Current Assessment

German Ifo Business Climate Index

New Home Sales

New Home Sales (MoM)

Mild

For any details contact:

Currency Advisory Desk - +91 22 3958 3600

currencyresearch@motilaloswal.com

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