FX Market Analysis Friday Sep 03, 2010 Rupee rallied from a low of 47.09 amidst positive global cues. Positive US data towards the end of the week has lessened the fear of double dip recession. ECB left its key interest rates unchanged and raised its GDP growth forecast to 1.6%. Sterling Pound remained weak throughout the week as the domestic data were negative. Yen rose to a new 15 year high at 83.66. US Dollar Sentiment: Negative Last week (DXY): O- 82.87 H- 83.34 L- 82.19 C- 82.41                         Expected range: 81.50-83.30 ISM Manufacturing PMI: 56.3 (prev: 55.5); CB Consumer Confidence: 53.5 (prev: 51.00) US economic recovery remains doubtful, but the release of positive data towards the end of the week has lessened the fear of recession to some extent. Given the underlying vulnerabilities on global front, the dollar will find it difficult to gain strong support unless the global credit crunch becomes evident again. During the week, Dollar traded within 115 bps to touch a high of 83.34 at the beginning of the week after weaker personal income data, which led to increase in risk aversion but DXY started to fall on the back of FED’s chairman Ben Bernanke's comments regarding slowdown in economic recovery. Most of the economic data like Personal Spending m/m, CB Consumer Confidence, ISM Manufacturing PMI, Pending Home Sales m/m, Unemployment Claims were healthier then the market expectation. In the absence of any major economic data, US Dollar is expected to remain in a tight range next week. Technically, DXY is expected to face resistance at 82.95 (100 Daily EMA), which if not breached, DXY might fall till 81.60 (55 & 200 weekly EMA). However, today’s NFP data will be crucial in determining US Dollar strength in the coming week. Indian Rupee Sentiment: positive Last week: O- 46.76 H- 47.09 L- 46.61 C- 46.63                         Expected range: 46.00-47.00 GDP: 8.8% ( prev: 8.6%); Primary articles 15.19%(prev: 14.75%) Rupee started the week stronger with a gap of 12 paise at 46.76 and gradually weakened to 47.09 amid doubts about sustainability of global economic recovery. Positive data from US and China reduced the fear of double dip recession, which caused a sharp rally in the domestic equity market on Wednesday and led to recovery in Rupee. Meanwhile, India's GDP rose 8.8% versus 8.6 percent which boosted confidence, increasing pressure on the central bank to increase key rates in the next monetary-policy meet scheduled on 16th September. Among other data, India's annual food price index increased 10.86% from 10.05 percent a week earlier. At the same time, primary articles inflation rose to 15.19% from 14.75% while fuel, power, and light & lubricants prices increased to 12.71% from 12.57%. Rupee continued its appreciation to close stronger at 46.63 amidst positive global cues but would find difficult to make much headway below 46.50 given the global risk conditions. Euro Sentiment: Positive Last week: O- 1.2752 H 1.2855 L 1.2625 C 1.2842                         Expected range: 1.2550-1.3150 German Unemployment Change: -17k (prev: -21k); Final Manufacturing PMI: 55.1 (prev: 55.0) Euro-zone sentiments seem to have stabilized with the demand for bonds being relatively firm. The structural vulnerabilities still persists though, and in such conditions even limited deterioration in sentiment could trigger heavy selling pressure on the Euro On Thursday, ECB left its key interest rate unchanged at 1% and commented that it will extend its unlimited loan offerings. It also raised its GDP growth forecast to 1.6% and Inflation forecast in the range of 1.5% to1.7% for 2010 & 2011, which helped euro to maintain its gains against the USD. Meanwhile, other economic data like Inflation, Employment and GDP were in line with the market expectation. EURUSD fell to touch its low of 1.2625 at the beginning of the week, but later it pared its losses and jumped up to 1.2855 as positive global sentiments caused an increase in risk appetite. Weekly and monthly stochastic are indicating further up move. As long as Euro trades above 1.2600 (61.8% retracement of the rise from 1.1875 to 1.3334), bias remains on the upside for a move up to 1.3100 (200 Daily EMA). British Pound Sentiment: Positive Last week: O 1.5539 H 1.5576 L 1.53326 C 1.5408                         Expected range: 1.5250 -1.5750 Manufacturing PMI: 54.3 (prev: 57.1); Nationwide HPI m/m: -0.9% (prev: -0.5%) Sterling remained under pressure for through out the week to touch a low of 1.5325 due weak economic data, which indicated that recovery in the UK economy is slowing. Economic data like Net Lending to Individuals m/m, Manufacturing PMI, Construction PMI and Nationwide HPI m/m were worse then the market expectation. Investors are now awaiting the rate decision scheduled next week that will help in deciding further trend in GBPUSD. As long as the pair holds 1.5325 (38.2% retracement of the rise from 1.4228 to 1.5997 and cloud support in weekly chart), bias remains on the up side for a move till the 55-Week EMA at 1.5555. Swiss Franc Sentiment: Positive. Last week: O 1.0283 H 1.0309 L 1.0064 C1.0151                         Expected range: 0.9900-1.0320 UBS Consumption Indicator: 1.86 (prev: 1.80); Retail Sales y/y: 4.8% (prev: 1%) Swiss Franc continued to gain support, as confidence in the global economy remained fragile. Concerns deterioration in the global economy is likely to keep CHF stronger in comparison with major currencies. During the week, Swiss Franc climbed to a record high against the Euro and almost to its parity level against greenback, which was also its highest level since 11th January 2010 In the upcoming week, USDCHF is expected to face resistance at 1.0302 (21 daily EMA) on the upside. As all major stochastic have flattened in the oversold region, further selling can be witnessed in the pair, which can take it below the parity level. Japanese Yen Sentiment: Positive Last week: O- 85.59 H- 85.90 L- 83.66 C- 84.39                         Expected range: 83.00-87.00 Manufacturing activity: 50.1 (prev: 52.8; Industrial production: 0.3% (prev: -1.1%) On Monday, Bank of Japan agreed to expand it six-month loan program by another 10 trillion yen in addition to the 20 trillion yen. The bank also maintained its key interest rate at near zero, but both this events failed to impress the market and sent the pair tumbling from intra week high of 85.90 to test 84.00 mark. On the data front, Japanese manufacturing activity expanded to 50.1 in August from 52.8 in July, it’s slowest pace in 14 months. Industrial production unexpectedly rose 0.3 percent in July whereas Retail sales rose 0.7 percent from a month earlier. During the week, Japanese Yen rose to a new 15 year high at 83.66 but failed to appreciate further on speculation of intervention. On the hand no significant depreciation was witnessed either with the pair currently trading around 84.50. This month traders will be closely following the results of elections scheduled on 14th September, where the outcome will determine the further direction in Japanese currency along with other global events. Canadian Dollar Sentiment: Negative Last week: O- 1.0494 H- 1.0673 L- 1.0471 C- 1.0552                         Expected range: 1.0350-1.0850 CAD opened at 1.0494 and retreated initially to touch an intraweek low of 1.0673 on the back of weaker economic data. Current account deficit widened to CAD$11 billion from CAD$8.5 billion. The Raw Materials Price Index (RMPI) increased 1.8%, Industrial Product Price Index (IPPI) edged up 0.1% in July lesser than expected of 0.5% while the Canadian economy expanded only by 0.2. There was no data for rest of the week but oil prices climbed nearly 3 percent on Wednesday its biggest one-day gain since early August that supported CAD to appreciate till 1.0471 but the it pared its mid-week gains on concern that U.S. job losses will stall the global economic recovery. Australian Dollar Sentiment: Positive Last week: O- 0.9016 H- 0.9116 L- 0.8860 C- 0.9104                         Expected range: 0.8750-0.9150 AUDUSD remained volatile amidst numerous economic data lined up during the week. A decline in inventories and home sales data overshadowed the positive corporate earnings data, which led to depreciation in Australian Dollar at the beginning of the week. Retail sales and building approvals rose significantly in the month of July while the current account deficit shrank by more than 60 percent in the second quarter. Australian Dollar touched a high of 0.9116 on Wednesday as second quarter GDP showed an expansion of 1.2% versus the consensus view of 0.9%. Despite the strong economic data, the gains in currency were limited due to the hung Parliament. Australia is still in a political deadlock with Gillard and Abbott battling for the job of Prime Minister. New Zealand Dollar Sentiment: Positive Last week: O- 0.7118 H- 0.7178 L- 0.6964 C- 0.7153                         Expected range: 0.6850-0.7200 New Zealand reported a trade deficit for the first time in seven months in July; the deficit was NZ$186 million ($133 million) from a revised NZ$214 million in June. Business confidence and the outlook for economic activity continued to decline, reducing the prospect of additional tightening by the Reserve Bank in near term. Meanwhile, a financial company filed for receivership, forcing the New Zealand government to pledge to repay all of the company's 13,000 depositors. These negative activities during first 2 days of the week kept NZD under pressure to fall towards 0.6964 (55 Weekly EMA) where it garnered support. However, NZD gained to make a high of 0.7178 on the back of rally in risk appetite globally towards the latter part of the weak. Looking ahead, although New Zealand businesses are optimistic on their outlook for exports and livestock activity, residential construction and the labor market remain areas of concern.