Pramit Brahmbhatt is CEO of Alpari FinancialServices (India)
The Indian Rupee witnessed a firmer opening on overnight global markets positivity due to the G20 and IMF meetings which aimed at solving the Euro zone debt issue and aid the global economy recovery. The INR couldn’t sustain the gains and extended its weakness for a low of over four months on weak Indian equities which have been suffering from policy paralysis. The price breached above Rs 53.00 levels to a high of Rs 53.28 and closed on a weak note.
The news of S&P downgrading India from stable to negative weighed on INR. The equity markets tanked to fresh lows on a negative outlook by S&P but pared losses on the Moody’s affirmation of its rating and positive tone of the global equity markets and better than expected corporate earnings.
The NIFTY which witnessed the expiry below 5200 for the second consecutive month after rising to 5600 levels in February engulfed the strengths acquired by INR due to fall in dollar index which hit to three week low of 78.82 levels. The May series like the April one will also benefit of a low start but a move below 5150 shall extended the weakness to 5100 - 5050 levels pushing the INR to Rs 53.00 – Rs 53.30 levels in May.
The dollar index reversed its gains from a high of 80.17 to pave its way till 78.68 levels on return of risk appetite among global investors on the comments and projections from FOMC, successful bond sale from euro zone and robust housing markets numbers from US which shadowed the weak numbers from Job and consumer sentiment readings.
The US stock markets witnessed their highest close since April 2nd this month buoyed by the accommodative monetary policy of Fed and its willingness to provide fresh monetary easing as and when required to put the economy back on track. The global positivity could lift the sentiments in Indian equities only on a temporary basis which were later shed to lack of positive internal policy supports.
The GBP and EURO advanced to their high of 1.6280 and 1.3270 levels respectively on falling dollar index. The French election was in focus and with Mr Hollandes lead over Mr Sarkozy weighed on Euro as the former is expected to lenient on the austerity measures and would rather focus on growth and this will further delay and derail the solution to the Euro zone debt crisis.
The economic numbers were also mixed from Euro zone; a falling PMI numbers, rise in Spain’s unemployment numbers and the more than expected rise in borrowing costs lead to risk aversion in global markets. The GBP which advanced to advanced to a multi months high of 1.6270 has also witnessed some weak retail sales and rising public sector borrowings which shall sound in the next BoE policy statement. The GBP has been in a overbought zone making it vulnerable for technical selling and profit booking.
Gold prices which have been trading on a sideways down trend edged higher on the much awaited positive news of QE3 from Fed. The Akshaya Tritya demand supported the prices and a falling USD fueled up the rally. With the QE3 talks sounding in FED’s statement the downside are limited and a move above $1680 shall test $1695 and $1705 levels. Supports are placed at $1640 and $1625 levels.
The INR has been encountering exporter selling around Rs 53.00 levels and also on fears of RBI intervention the pair is not able to sustain below the said levels. We expect the RBI to delay its intervention as long as the markets trade on a weak note and the oil importers demand shall continue to aid the prices lower.
Exporters can start hedging their dollar receipts and the importers can adopt a wait and watch policy as the downside for the pair in the current move is expected to be limited to Rs 53.50 levels from there we expect the INR to regain its lost grounds to Rs 52.00 and Rs 51.50 levels.
Technical Take on USDINR
The price continues to trade within the rising channel and advances has been resisted at the trend line resistance of the channel. The close above the 50% level of Fibonacci is a positive sign which can target the 61.8% levels of Fibonacci within the reach. The fourth consecutive weekly rise shall be resisted at Rs 53.50 levels and we expect some profit taking from those levels. We recommend selling on rise towards Rs 53.40 levels with a stop above Rs 54.20 targeting Rs 52.30 and Rs 51.80 levels.