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Buy USD/INR Futures On Dips

Monday, February 03, 2014
By Pramit Brahmbhatt

Pramit Brahmbhatt is CEO of Alpari Financial Services (India)

Last week the USD/INR Pair started on a weak note but slowly gained during the week and towards the end of the week the Rupee eventually appreciated and closed on a positive note after a two week fall. The Rupee traded strong mainly after RBI surprisingly raised interest rates to reduce inflation and also stated that if retail inflation eases as projected, it does not foresee further near-term monetary policy tightening. Local equities continued to fall and closed down at a 9 week low. The trading range for the spot USDINR pair is expected to be within 62.00 to 63.50.

It is recommended to be cautious and Buy USD/INR Futures on dips with the appropriate stop loss as Rupee at this stage is expected to depreciate more against dollar. Pivot Point for the Pair is at 63.08 and below is the Support & Resistance levels.

Last week GDP and jobless claims reports were projected to have a modest impact on market’s movement, even despite the fact that they give an insight on what is happening with the key labour market and at what pace the economy is developing. It seems that the Federal Reserve was already aware of the data when it took decision to trim down monthly purchases further. Therefore, even GDP report gives little information about possible future actions from the Fed, as they have already signaled further cuts.

None the less, the fourth quarter growth came in line with analysts’ forecasts, as economy benefited from higher household spending and trade receipts, which both posted strongest gains in three years. The world’s largest economy expanded 3.2% in the final quarter, losing momentum from the third quarter, when growth stood at 4.1%. Meanwhile, the expansion is likely to pick up and at least stay above 3%, as drags from fiscal policies and political disputes dissipate after the Congress passed the budget, diminishing hopes of another shutdown. American families bought 3.3% more goods and services, while purchases of long-lasting goods remained little changed. The main drag, however, become business investment, which exacerbated fewer spending made by the U.S. government. Also Thursday, the Labor Department said the number of initial jobless claims rose 348,000 last week, coming below analysts’ expectations.

German unemployment retreated more than forecast in January, adding to signs the Germany economy will continue to lead euro area recovery. Jobless rate in Europe’s biggest economy recorded 6.8%. Markets will be keeping a close watch on a Euro zone inflation report for January as the European Central Bank (ECB) comes under mounting pressure to tackle deflationary risks. Inflation is expected to rise to an annual rate of 0.9% in January – sharply below the ECB’s inflation goal of 2.0%, boosting expectations of near interest rate cut if signs of economic deterioration emerge during the upcoming period. Policymakers at the ECB are scheduled to meet next week to set the next direction of monetary policy, where expectations signal the Governing Council will leave the rates unchanged. ECB President Mario Draghi repeatedly reiterated the monetary policy will stay accommodative for an extended period of time.

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