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HSL PCG Currency Insight-Weekly

24 October, 2016
WEEKLY MOVEMENT MARKET WRAP UP
STRONGER DOLLAR WOULD DRAG RUPEE LOWER IN NEAR TERM
Currency
After two consecutive week of consolidation, rupee weaken in the
Currency
Last
Prev.
Chg.
% week gone by to close at 66.89 from previous weeks 66.71. The
(Spot) Close Chg. strengthen in dollar against Asian Currencies and dollar demand from
DXY Index 98.5210 98.0190 0.50 0.51% oil importers drag rupee lowered. However, rupee still remain stronger
than many Asian Currencies with volatility seen lowest seen 2008.
EURUSD 1.0888 1.0972 -0.01 -0.77%
From 3-19 October (in the last 11 consecutive sessions), FIIs sold
GBPUSD 1.2211 1.2191 0.00 0.16% $1.19 billion in debt, while in the last six trading sessions they sold
USDJPY 103.71 104.18 -0.47 -0.45% $361.85 million in equity markets.
We believe improving domestic macroeconomic will continue to keep
USDINR 66.8900 66.7150 0.17 0.26%
the rupee stronger.
EURINR 72.8720 73.4910 -0.62 -0.84% Spot USDINR could witness near term weakness amid month end
GBPINR 81.7135 81.6179 0.10 0.12% dollar demand from importers and FCNR related demand. Technically,
Spot USDINR is having near term resistance at 67.07 and 67.30 while
JPYINR 64.4300 63.9400 0.49 0.77%
66.70 and 66.52 remains support.
DGCX USDINR 66.9120 66.8092 0.10 0.15%

Dollar Registered Another Strong Week


RBI Reference Rate Dollar index continued rallying for the third consecutive week in row
after ECB maintains Policy Rate Unchanged. The buck has climbed to
eight-month highs and at the fastest pace since the November rally
Prev. %
Currency Last Chg. back to 12-year highs. Euro dropped 2.8% over the past two weeks
Close Chg.
the biggest Dollar move amongst the majors to a 7-month low.
USDINR 66.8943 66.8481 0.05 0.07% There are few some of the fundamental rational behind the strength
EURINR 72.9750 73.6867 -0.71 -0.97% which are US Fed may raise interest rate before year end, Easy
monetary policy from ECB and BoJ, Chance of victory of Ms. H. Clinton
GBPINR 81.9589 81.4811 0.48 0.59%
in Presidential Election and improvement in domestic macros.
JPYINR 64.4000 64.2300 0.17 0.26% Fed Fund futures price approximately a 66% probability that the
central bank moves at that meeting in December.
GOI 10 Yr. Bond Yield Euro lost ground after the ECBs decision to defer its taper
announcement doesnt write the script for a full topple for the
currency. Pound has shown greater resilience to Brexit headlines this
Prev. % past week. Yen and commodity-based crosses meanwhile are waiting
Instrument Last Chg.
Close Chg.
for their cues from risk benchmarks.
697GS2026 6.7610 6.7540 0.01 0.10%

PRIVATE CLIENT GROUP [PCG]


Week Ahead

Monday, Oct. 24
Federal Reserve Bank of St. Louis President James Bullard speaks on the U.S. economy and monetary policy at the fall
research conference of the Association for University Business and Economic Research. U.S. Federal Reserve Bank of Chicago
President Charles Evans holds a discussion on current economic conditions and monetary policy before the Civic Affairs
Society of the University Club of Chicago, in Chicago
ECONOMY: U.S. Chicago Fed National Activity Index (Sept.) and Markit manufacturing PMI (Oct. preliminary); Japan trade
(Sept.); Euro-area Markit manufacturing and Markit services PMI (Oct. preliminary).
Tuesday, Oct. 25
U.S. Federal Reserve Bank of Atlanta President Dennis Lockhart speaks to the Opportunity Finance Network on community
development
European Central Bank President Mario Draghi gives a speech at DIW economic institute on stability, equity and monetary
policy.
ECONOMY: U.S. S&P Core Logic 20-city home-price index and FHFA home-price index (Aug.), Richmond Fed manufacturing
(Oct.)
Wednesday, Oct. 26
ECONOMY: U.S. MBA mortgage applications (weekly), German GfK consumer confidence (Nov.),
Thursday, Oct. 27
ECONOMY: U.S. jobless claims and consumer comfort index (weekly), pending home sales (Sept.) and Kansas City Fed
manufacturing (Oct.); U.K. GDP (3Q);
Friday, Oct. 28
U.S. gross domestic product growth probably picked up in the third quarter after a sluggish pace in the first half, economists
forecast. The Commerce Department will issue its first estimate.
ECONOMY: U.S. employment-cost index (3Q) and U.S. Michigan consumer sentiment (Oct. final); Chile unemployment
(Sept.); Euro-area economic confidence and business climate (Oct.); Japan CPI (Sept.).

WEEKLY PRICE - VOLUME - OI (PVO)

PREV. OPEN PRV.


WKLY PREV. WKLY OI VOLUME WKLY VOL.
CURRENCY PAIR CLOSE WEEK INTEREST WEEK
% CHG. WEEK OI % CHG. (VOL.) % CHG.
CLOSE (OI) VOL.

NSE INRUSD Future Oct16 66.9100 66.8150 0.1% 1215890 1243643 -2.2% 819706 947084 -13.4%
NSE EURINR Future Oct16 72.9175 73.6575 -1.0% 27301 30128 -9.4% 42070 30293 38.9%
NSE GBPINR Future Oct16 81.7900 81.8425 -0.1% 81508 91188 -10.6% 57479 59652 -3.6%
NSE JPYINR Future Oct16 64.5025 64.0725 0.7% 20660 23763 -13.1% 38178 41256 -7.5%

PRIVATE CLIENT GROUP [PCG]


TECHNICAL OUTLOOK USDINR OCT. FUTURE
USDINR Oct. Future CMP 66.91
DAILY CHART
Weekly
Currency
Pivot

Resistance 2 67.15

Resistance 1 67.03

Pivot 66.87

Support 1 66.75

Support 2 66.58

Buy USDINR Oct Fut. Above 67.08

The pair has been consolidating


in the range of 67.20 too 66.60
for last 6 consecutive weeks
Tops and bottoms on the daily
charts have started narrowing
and the pair is likely to get one
sided momentum in the short
term.
Any level above 67.08 in Oct
Fut. would result in bullish
trend reversal on the short
term charts.
200 DMA resistance is placed at
67.22 in Oct Fut.
We recommend buying
USDINR Oct Fut. above
67.08, for the target of
67.60, keeping stop loss at
66.80 on closing basis

PRIVATE CLIENT GROUP [PCG]


TECHNICAL OUTLOOK EURINR OCT. FUTURE
EURINR Oct. Future CMP 72.90

Currency
Weekly DAILY CHART
Pivot

Resistance 2 74.09

Resistance 1 73.50

Pivot 73.17

Support 1 72.58

Support 2 72.25

EURINR : Maintain Sell

Pair has entered in to a clear


cut down trend for last two
weeks. It has broken down
below the crucial support of
73.25 on 13th Oct 2016.
Bearish head and shoulder
breakdown has been witnessed
on the daily charts.
The pattern indicates the target
around 72.30 for the pair
On the weekly chart, pair has
broken down below
symmetrical triangle. This
development indicates the
medium term bearish rend
reversal.
We advise to hold shorts in
EURINR Oct fut. at CMP for
the downside targets of
72.30 and 71.80, keeping
raised stop loss at 73.75.

PRIVATE CLIENT GROUP [PCG]


TECHNICAL OUTLOOK GBPINR OCT. FUTURE
GBPINR Oct. Future CMP 81.79

Weekly
Currency
Pivot DAILY CHART
Resistance 2 82.85

Resistance 1 82.32

Pivot 81.84

Support 1 81.30

Support 2 80.82

Long term support seen at 81

Pair has been beaten down


significantly for last 5 Months.
It has reached the lowest
levels since March 2013.
Pair is in the clear cut down
trend.
However long term support
for the pair is seen at 81 odd
levels, which could provide
some technical bounce in the
pair.
Though the trend is bearish,
shorting at current levels may
become risky, as the pair has
reached at long term support
of 81.
Short term support and
resistance are placed at 81.35
and 82.37.

PRIVATE CLIENT GROUP [PCG]


TECHNICAL OUTLOOK JPYINR OCT. FUTURE
JPYINR Oct. Future CMP : 64.50
DAILY CHART
Weekly
Currency
Pivot

Resistance 2 64.94

Resistance 1 64.72

Pivot 64.43

Support 1 64.21

Support 2 63.92

Maintain Sell For the Target of


63

Pair has broke down below


medium term supporting trend
line, indicating weakness.
Lower tops and lower bottoms
pattern is confirmed on the
daily chart. Previous bottom
support of 64.42 is violated on
closing basis
20 DMA has reached below 50
DMA after long time. This setup
confirms the bearish trend in
the pair.
Oscillators are also showing
weakness on the charts
We advise holding our
earlier recommended shorts
for the downside target of
63, keeping stop loss at 65.

PRIVATE CLIENT GROUP [PCG]


DOLLAR INDEX EURUSD

DXY: Daily Chart

EURUSD: Daily Chart

GBPUSD USDJPY

USDJPY: Daily Chart

GBPUSD: Daily Chart

PRIVATE CLIENT GROUP [PCG]


USDINR OCT. MONTH OPTION DISTRIBUTION

Data Interpretation:
With the strike having highest open interest of 3.96 lakh contract at 67.50 call, indicating near term resistance for the
pair ahead of the October month expiry. While on put front 66.50 strike have 3 lakh open interest indicating near term
hurdles for the pair.
Weekly open interest put call ratio stood at 0.70 from previous weeks 0.75 suggesting short covering.
Looking at the option distribution October month expiry could be below 67.50.

PRIVATE CLIENT GROUP [PCG]


USDINR OCT. FUT. ROLLING CHART (PRICE AND OPEN INTEREST)

Data Interpretation:
USDINR Oct. future closed at 66.91 with the gain of 0.10% after two consecutive weeks muted action. The near month
future open interest placed at 12.16 lakh from previous week 12.44 lakh contracts. The aggregate Open interest stood at
23.77 lakh from previous week 21.19 lakh contracts.
During the week, we had seen fall in volume and open interest with small change in price.
The bias for the pair remains bearish till it surpasses 67.50 with downside support at 66.50.

PRIVATE CLIENT GROUP [PCG]


INDIA FOREX RESERVE

Indian Foreign Exchange Reserves (US$ Billions)


Wkly Chg. 14-Oct 7-Oct 30-Sep 23-Sep 16-Sep 9-Sep
Total Reserves -1.51 366.14 367.65 371.99 370.77 369.6 371.28
Foreign Currency Assets -1.49 340.9 342.39 346.7 345.24 344.07 345.75
Gold 0.00 21.4 21.4 21.4 21.64 21.64 21.64
Special Drawing Rights -0.01 1.47 1.48 1.49 1.49 1.49 1.49
Position in IMF -0.01 2.36 2.37 2.39 2.39 2.4 2.4

FOREIGN FUND FLOW VS USDINR

Foreign Fund Flows Activity

PRIVATE CLIENT GROUP [PCG]


MAJOR CURRENCIES
1 DAY 5 DAY 1 MONTH 3 MONTHS
CURRENCY PAIR OPEN HIGH LOW CLOSE
(% CHG) (% CHG) (% CHG) (% CHG)
DOLLAR INDEX SPOT 98.315 98.606 98.301 98.537 0.23 0.53 3.01 1.58
Euro Spot 1.0929 1.093 1.0878 1.0891 (0.35) (0.74) (2.66) (1.22)
British Pound Spot 1.2254 1.226 1.2206 1.2211 (0.35) 0.16 (6.30) (7.72)
Japanese Yen Spot 103.95 104.2 103.67 103.72 0.22 0.44 (3.28) 2.02
Indian Rupee Spot 66.895 66.9438 66.835 66.89 (0.12) (0.26) 0.20 0.43
Brazilian Real Spot 3.1433 3.153 3.1425 3.1523 (0.33) 1.71 1.73 3.79
Australian Dollar Spot 0.7627 0.7651 0.7618 0.7632 0.07 0.18 0.10 1.83
South Korean Won Spot 1130.04 1136.96 1128.18 1134.83 (0.66) (0.22) (1.29) 0.10
S. African Rand Spot 13.9517 14.0807 13.8994 14.0464 (0.67) 1.94 (3.34) 1.31
Canadian Dollar Spot 1.323 1.3258 1.3226 1.3235 (0.04) (0.73) (1.01) (1.11)
Swiss Franc Spot 0.9927 0.9959 0.9924 0.9942 (0.15) (0.39) (2.04) (0.86)

MAJOR COMMODITIES
1 DAY 5 DAY 1 MONTH 3 MONTHS
COMMODITY OPEN HIGH LOW CLOSE
(% CHG) (% CHG) (% CHG) (% CHG)
GOLD 1265.76 1267.21 1261.26 1266.5 0.06 1.24 (5.14) (4.88)
SILVER 17.5367 17.5659 17.3974 17.5268 (0.06) 0.61 (11.67) (11.43)
CRUDE OIL 50.66 50.98 50.33 50.9 0.53 0.30 10.89 8.55

MAJOR INDICES
1 DAY 5 DAY 1 MONTH 3 MONTHS
INDEX OPEN HIGH LOW CLOSE
(% CHG) (% CHG) (% CHG) (% CHG)
Nifty 50 8708.6 8709.1 8652.1 8693.1 (0.07) 1.28 (0.96) 2.15
S&P BSE SENSEX INDEX 28163.4 28163.4 27957.9 28077.2 (0.19) 1.46 (1.51) 1.32
DOW JONES INDUS. AVG 18161.9 18249.1 18129.1 18162.4 (0.22) 0.35 (0.72) (1.92)
S&P 500 INDEX 2142.5 2147.2 2133.4 2141.3 (0.14) 0.41 (1.01) (1.10)
NASDAQ COMPOSITE INDEX 5238.2 5252.1 5216.0 5241.8 (0.09) 0.55 (1.01) 3.31
FTSE 100 INDEX 7026.9 7058.4 7019.4 7048.8 0.31 0.50 3.13 5.21
CAC 40 INDEX 4546.7 4555.1 4529.8 4532.1 (0.18) 1.37 2.78 3.56
DAX INDEX 10710.5 10737.3 10693.5 10696.8 (0.04) 1.10 2.49 5.32
NIKKEI 225 17283.8 17288.9 17152.0 17184.6 (0.30) 1.95 2.24 2.23
HANG SENG INDEX 23412.7 23500.8 23360.6 23374.4 0.30 1.49 (1.25) 6.24
SHANGHAI SE COMPOSITE 3081.4 3101.8 3069.3 3090.9 0.21 0.89 2.15 1.71

PRIVATE CLIENT GROUP [PCG]


ECONOMIC EVENTS NEXT WEEK
Date Time Country Event Period Survey Prior
10/24/2016 06:00 JN Nikkei Japan PMI Mfg Oct P -- 50.4
10/24/2016 13:30 EC Markit Eurozone Manufacturing PMI Oct P 52.6 52.6
10/24/2016 13:30 EC Markit Eurozone Services PMI Oct P 52.4 52.2
10/24/2016 18:00 US Chicago Fed Nat Activity Index Sep -0.13 -0.55
10/24/2016 19:15 US Markit US Manufacturing PMI Oct P 51.5 51.5
10/25/2016 19:30 US Consumer Confidence Index Oct 101 104.1
10/25/2016 19:30 US Richmond Fed Manufact. Index Oct -4 -8
10/25/2016 19:30 US IBD/TIPP Economic Optimism Oct 47.5 46.7
10/26/2016 16:30 US MBA Mortgage Applications 21-Oct -- 0.60%
10/26/2016 19:15 US Markit US Services PMI Oct P 52.3 52.3
10/26/2016 19:15 US Markit US Composite PMI Oct P -- 52.3
10/26/2016 19:30 US New Home Sales Sep 602k 609k
10/27/2016 14:00 UK GDP YoY 3Q A 2.10% 2.10%
10/27/2016 18:00 US Durable Goods Orders Sep P 0.10% 0.10%
10/27/2016 18:00 US Initial Jobless Claims 22-Oct -- 260k
10/27/2016 18:00 US Continuing Claims 15-Oct -- 2057k
10/27/2016 19:30 US Pending Home Sales MoM Sep 1.20% -2.40%
10/27/2016 20:30 US Kansas City Fed Manf. Activity Oct -- 6
10/28/2016 14:30 EC Consumer Confidence Oct F -- --
10/28/2016 18:00 US GDP Annualized QoQ 3Q A 2.50% 1.40%
10/28/2016 18:00 US Personal Consumption 3Q A 2.60% 4.30%
10/28/2016 18:00 US Core PCE QoQ 3Q A 1.60% 1.80%
10/28/2016 19:30 US U. of Mich. Sentiment Oct F 88.1 87.9

PRIVATE CLIENT GROUP [PCG]


KNOWLEDGE CENTRE

How Importers And Exporters Could Use A Forex Hedge To Minimise Losses

An important tool in the global financial markets, hedging is used in every asset class to mitigate losses. This can be
utilised by anyone, whether it is an individual or corporate, to overcome the negative impact of price volatility.

For the corporate in which the business activity is dependent on import and export of commodities, there is an automatic
exposure to foreign exchange and, hence, the need for hedging is higher. In the current context, since the world markets
are interlinked, they eventually affect and impact the movement of currencies.

Hedging, in any asset class, is ultimately a strategy to decrease or transfer risk in order to protect one's portfolio or
business from uncertainty in prices. In case of hedging in the foreign exchange market, a participant who is entering a
trade with the intention of protecting the existing position from an unexpected currency move, is said to have created a
forex hedge.

With the help of a forex hedge, a participant who is long in a foreign currency pair, can protect himself from the downside
risk. On the other hand, a hedger who is short on a foreign currency pair will protect his existing position from the upside
risk.

The strategy to create a hedge would depend on the following parameters: (a) risk component (b) risk tolerance and (c) to
plan and execute the strategy.

The impact of the movement in the USD-INR currencies affects both importers and exporters. In other words, an importer
will benefit when the rupee appreciates, while the exporter will gain when the rupee depreciates against the US dollar. The
cost of import reduces when the rupee gains strength, thus benefiting an importer, and at the same time creating a loss for
the exporter, since a stronger rupee will reduce the export remittances when converted to Indian rupees.

In order to reduce the risks associated with these uncertain movements in the financial markets, both importers and
exporters can utilize the derivatives platform of currency futures. By creating an equal and opposite position in the
derivatives market, a hedge can be created.

PRIVATE CLIENT GROUP [PCG]


KNOWLEDGE CENTRE

How Hedging Works For An Importer

Suppose an oil importer wants to purchase oil worth $1,00,000 and places his order on 11 March 2016, with the delivery
date being three months away. At the time of placing the contract in the spot market, one US dollar is worth, say, Rs
66.50. However, suppose the Indian rupee depreciates to Rs 69 per dollar when the payment is due in June 2016, the
value of the payment for the importer goes up to Rs 69,00,000 rather than Rs 66,50,000.

In this case, if the importer hedges the currency risk, the losses can be reduced. Here's how the hedging strategy for the
importer would work:

Buy 100 lots of USD June 2016 contracts on 11th March 2016, assuming that June 2016 contract is trading at 67 on 11th
March 2016.
Then in June 2016, He square off 100 lots USD at 69. Profit of Rs. 200000, i.e. 1000 lot size* (69-67) *100.
Then importer makes the payment of oil purchase at 69 per dollar

Had the importer not hedged his position, he would have suffered a loss of Rs 2,50,000 (Rs 69,00,000 - Rs 66,50,000).
However, by creating a hedge position on the futures platform, his losses were reduced to Rs 50,000 due to profits in
currency hedge.

How An Exporter Can Use Hedging

A Jeweller, who is exporting gold jewellery worth US$50,000 in March 2016, wants protection against a possible
appreciation in the Indian rupee in June 2016 (spot Rs 66.50), when he receives his payment. When he is required to make
the payment in June 2016, suppose the rupee appreciates to 64. If, in this situation, he wants to lock in the exchange rate
for the above transaction, his strategy would be as follows

In March 2016, Sell 50 lots of June 2016 contract USD with a lot size of 1000,spot market @66.50. Assume that initially
the Indian rupee depreciated, but later appreciated to 64 per USD as foreseen by the exporter at end of June 2016.

Had the exporter not hedged his position, he would have suffered a loss of Rs 75,000, i.e. (50*1000*(66.50-64)), but by
creating a hedge he has made a profit of Rs 75,000 in the futures, offsetting his business loss. Hence, exposure
management is essential, given the premise of a volatile foreign exchange market. Hedging in the currency markets,
therefore, holds prime importance.

PRIVATE CLIENT GROUP [PCG]


Technical Research Analyst(Equity and Currency): Vinay Rajani (vinay.rajani@hdfcsec.com)
Research Analyst(Currency): Dilip Parmar (dilip.parmar@hdfcsec.com)

HDFC securities Limited, I Think Techno Campus, Building - B, "Alpha", Office Floor 8, Near Kanjurmarg Station, Opp. Crompton Greaves, Kanjurmarg (East), Mumbai 400 042
HDFC securities Limited, 4th Floor, Above HDFC Bank, Astral Tower, Nr. Mithakadi 6 Road, Navrangpura, Ahmedabad-380009, Gujarat.
Phone: (079) 66090040 /66070168, Website: www.hdfcsec.com Email: pcg.advisory@hdfcsec.com
"HDFC Securities Ltd. is a SEBI Registered Research Analyst having registration no. INH000002475."
Disclosure:
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PRIVATE CLIENT GROUP [PCG]