India’s Trade Deficit 17 Month low, should we celebrate?

India’s Trade deficit has contracted to USD 9 Bn, nearly a 17 month low levels, in Feb-2019. Though, contracting trade deficit should be seen as a rupee positive development, but one should be wary of the details.

	Jan-19	Feb-19	Change
Exports	26.4	26.7	0.30
Import	41.1	36.3	(4.80)
Oil	11.2	9.4	(1.80)
Gold	2.3	2.6	0.30
Non-Oil and Non Gold	27.6	24.3	(3.30)
Trade Deficit	-14.7	-9.6

As above table shows, India’s exports grew by just USD 0.3 Bn in Feb and imports has reduced sharply by USD 4.8 Bn. Given the decline in crude oil prices, oil imports have declined by USD 1.8 Bn and Gold imports increased by USD 0.3 Bn. The major decline in imports was contributed by non-oil and non-gold imports, which declined by USD 3.3 Bn. There has been a decline in electronics (USD 1 Bn), transport (USD 0.4 Bn) and chemical related products (USD 0.3 Bn). This sharp decline in non-gold-non-oil imports is also sign of slowing domestic economy. Hence, though, contracting trade deficit is a good news but celebration should rather be delayed!

Positional Trade: Sell EUR/USD on Dovish ECB

European Central Bank, in recent monetary policy meet, has reduced the growth and inflation forecast for 2019 and 2020. The worsening economic outlook is in line with recent macro-economic data. Interestingly Mario Draghi might be an lone central banker, who is expected to complete his 8 year term with-out hiking interest rates, ECB suggested that there would be no interest rate hike in the current year.

ECB has finally revisited its TLTRO programme to maintain ample liquidity in the system. TLTRO-III will be available at end of each quarter starting Sep-2019 till March-2021.ECB has also reiterated that it will continue to reinvest its proceeds from maturing bonds.

The EUR/USD pair, which had been trading in a broad range of 1.1260-1.1550 from the last six months, has given a break-down. Going forward, EUR/USD pair can be sold at CMP 1.1230 levels with a stop of 1.1305 and target of 1.1130 and eventual target of 1.1020

Short Term Trade: Intra-day USDINR Buy

The USDINR opened the session on a weak note at 70.10 levels, well below lower end of Bollinger band, against previous close of 70.28 levels. Typically, when price trades outside the Bollinger band, prices tend to back come inside the band region. This price-action gives a short term trading opportunity to buy USD/INR at CMP 69.96 levels with stop below 69.80 levels, previous lows on daily chart, with target of 70.22 levels.

This technical call only for intra-day.