November 30, 2009
CMP: Rs.46.6875/USD
Fundamental Analysis
A crucial week for international finances as Chinese and Dubai news rattled the stock exchanges the world over. The knee jerk reaction was felt in USDINR pair which fell during the beginning of the week but rose there after developments in global markets affected the currency pair. Looking at the Chronology of events initially it was better than expected American economic data lead to fall in USDINR pair however it was
followed by news flows from Dubai and China which affected the sentiments across the globe. Dollar futures opened the week at 46.55 and fell to 46.21. However panic was seen on Friday where Nifty fell by 200 points to 4806 and USDINR touched 47.16. However recovery was seen which lead to USDINR closing at 47.74 levels.
Bullish Economic Data
American economic data was better than expected that lead to fall in dollar index. Dollar
from downside and made a
low of 74.30 after data
indicating various
consumption patterns of
American individuals
increased drastically.
Personal Spending rose by
0.7% from -0.6% while
Personal Income rose by
0.2% in September. Housing
indicators indicated a smart
recovery as New Home Sales
rose 430K from 405K
previously.
American economy continued to rise with third-quarter gross domestic product rising by2.8%. The Federal Open Market Committee called the dollar’s depreciation “orderly” in minutes of its November meeting released yesterday.
Chinese Economy
China’s stocks fell as concern banks will have to raise capital to meet swelling loan demand dragged financial companies lower. Bank of China Ltd., which said this week it’s studying options to replenish funds The nation’s five largest banks submitted plans to regulators to raise funds. Lenders were told by the nation’s banking regulator to estimate potential deficits in 2010 based on their own loan forecasts and capital ratio targets. China has cut interest rates five times since September 2008 and encouraged $1.3 trillion of lending to boost domestic spending as the global recession curbed demand for the country’s exports.
The Dubai Factor
Asset classes across the globe were rattled after a proposal from Dubai to delay debt payments set off a slide in stocks and higher-yielding assets worldwide. Dubai World, the government investment company burdened by $59 billion of liabilities, will ask all creditors for a “standstill” agreement as it negotiates to extend debt maturities. The news shook markets recovering from the collapse of the U.S. housing bubble and contagion that threatened to rupture the global financial system last year. Though Abu Dhabi is the United Arab Emirates capital, the seat of most of its oil wealth and the largest of the seven self-governing emirates by size, it took a back seat in recent years as Dubai undertook spectacular real estate projects as a tourism and finance hub. Dubai's population rocketed to 1.5 million, as white-collar professionals from around the world took plum jobs in a country marketed as a liberal enclave in the Gulf sun.
Conclusion
Looking at the movement of USDINR during the week the question still remains whether the downward trend still exists in the pair or whether the trend has changed. Liquidity scenario in the country continues to be comfortable. Money supply (M3) which comprises of currency in circulation, bank deposits and money invested in other saving plans grew 17.8% in past two weeks to Rs.51.7 trillion. The bond yields continued to fall with benchmark yields quoting at 7.18% from 7.25% earlier this week. Industrial production is on rise with low credit off take leaving surplus with many a banks. Looking at such high liquidity it is hard to believe that USDINR will strengthen in coming days. As the famous trading jargon goes “NO SINGLE EVENT CAN CHANGE THE TREND”, we continue to have a bearish view on the pair for a target of Rs.45/USD in
coming quarter.
Technical Analysis
The chart of USDINR (spot) has two different stories to tell. Firstly, a sort of double
bottom can be seen being made at 46.2 levels. The trendline joining the top prices has
been breached but only on intraday basis. The closing has been below the trendline
indicating high probability of a fake breakout. Overall a breach below 46.21 levels will
take the pair further down. On upside 47.50 will act as a crucial resistance.
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