Finally Dollar Index Breaks :)

 “While looking back, things look quite straightforward and logical especially in markets” – Anonyms

Globally, EUR/USD surged past 1.20 handle as it broke multiple resistances, including falling monthly trend-line from 2011. Over the past one month, the EUR/USD pair has been gaining momentum as pair gained more than 450 pips from its post-US election low of 1.1602. Just to be clear, the surge in Euro has a very little contribution from the European economy, which continue to struggle amid Covid crisis. Euro Area’s service PMI remained below 50 at 41.3 levels, while manufacturing PMI improved to 53.6. November German Ifo business climate released at 90.7 levels, lower than October and pre-covid levels.

The surge in Euro can be explained better from improved risk appetite of global investors. CBOE volatility index VIX, has an inverse relationship with risk appetite, crashed to 20.77% lowest since 24^th Feb (Start of Covid sell-off). In last one month, US S&P index has gained more than 10% from 3300 to 3663 levels indicating significant rally in stock prices, which can be attributed unrealized tail risk from US election and optimism from Vaccine results. The gain in euro, obviously means, much-awaited breakdown in US dollar index. US dollar index broke down key support levels 91.70-91.90 zone. The structural decline in US dollar index can also be attributed to overtly dovish Fed and lack of inflation risk in the economy.

Technically, the break of 1.20 handle seems quite significant on EUR/USD chart and there is a possibility of another leg of movement till 1.23-1.24 levels. As US dollar index has next significant support near 88.50-89.00 levels, there is space of nearly 3% decline in US dollar index. It is noteworthy that ECB has been a bit uncomfortable from the surge in Euro in the past.  ECB policy, next week, can be a key trigger for the pair.

On domestic front, there have been multiple positive factors underplay like improving current account, robust FIIs and FDIs flows and weak US dollar. Despite all this, Rupee appreciation has been relatively mild as RBI has been building FX reserve at an electric pace. Technically, USDINR pair has multiple support b/w 73.15 to 73.50 levels. As always, appreciation rupee will remain at mercy of mint street.

Currency Market Updates 26 Oct

 Globally, equity markets remained poised as US politicians continue to reduce their difference over the fiscal package. Dow Jones closed slightly in red 0.1% lower. Markets are likely to shift focus from fiscal package to US election outcome given we are just a week away from polling day. The price action in EUR/USD pair remained bullish as pair rebound to 1.1840 levels after testing a low 1.1785 on Friday. The gains in EUR/USD were further supported by the release of improved manufacturing PMI data from Germany and Euro area 58 & 54.4 respectively. Technically, EUR/USD pair has support near 1.18-1.1820 on a closing basis and resistance near 1.1860-1.1880 levels.

On domestic front, Nifty is trading flat near 11900 levels and 10-year bond yield is trading at 5.84%. Last week, despite broader dollar weakness USDINR pair gained amid continued buying by RBI, which led FX reserves surge to $555 bn mark. Technically, USDINR pair has witnessed triangle pattern break-out at 73.50 levels on 4-hour time frame. USDINR pair is likely to trade with bullish bias with support near 73.50-55 level and resistance near 73.90 levels if broken can test 74.10 levels.

Currency Market Updates: 21 Oct

Globally, Risk sentiment remained elevated as US politician continued to deliberate over the stimulus package. Dow Jones closed in green nearly 0.4% above the previous close. Given, we are just two weeks away from the Nov-3(US election date) any package would be more about the political picture than economic outlook. Moreover, markets are quite optimistic about the package any deviation from the expected lines could lead to sudden risk-off moves.

The EUR/USD pair has surged nearly 150 pips from lows of 1.701 levels. The sharp gains in Euro can be attributed to decent Chinese economic data and optimism over US economic package. Given the lack of economic data from EU, Euro is likely to be driven from the outcome of US economic package. Technically, the EUR/USD pair is trading near upper Bollinger band at 1.1845 levels. EUR/USD pair has significant resistance near 1.1855-60 levels, a break of which might lead the pair to 1.19 levels. EUR/USD pair has support near 1.1780 levels.

On the domestic front, Nifty is likely to retest key resistance at 12025 levels as it tracks global peers. On the currency front, Yesterday, USDINR pair had spiked to 73.535 amid strong buying interest from national banks. Strong buying interest from national banks has kept rupee appreciation under check despite a significant rally in Chinese yuan and weakness in US dollar index. Technically, USDINR pair has key support near 73.25 levels and strong resistance near 73.60 levels

Currency Market Updates 11-Sep

Globally, much-anticipated ECB monetary policy turned out to be a low key event as ECB decides to keep monetary policy framework broadly unchanged. ECB President, Lagarde maintained the ultra-easy policy along with bond-buying programmes are showing intended results in the Euro area. More importantly, for currency traders, Lagarde felt that “Clearly to the extent that the appreciation of the euro exercises negative pressure on prices, we have to monitor carefully such a matter”. To be fair, the tone of comments were quite soft, thus signalling that ECB is broadly comfortable with the recent rally in EUR/USD pair. Post ECB meeting, EUR/USD pair spiked to 1.19 handle but could not sustains its gains due to rising concerns of hard Brexit and sell-off in US equity markets. Dow Jones resumed its downward journey as it tumbled nearly 1.5%. Technically, the EUR/USD pair has multiple resistances (falling trendline on the monthly chart from 2008) at 1.1990-1.2030 zone.  Any meaningful rally is only plausible after a monthly close above 1.12040 levels.

 

On the domestic front, Yesterday, Equity markets rebounded nearly 1.5% after the rumour of Amazon investing nearly $20 bn in Reliance retail, leading to nearly 7% rally in reliance industries. The same news leads to sharp volatility in currency markets, as USDINR momentarily fell to 73.15 before retracing back to 73.43 levels. It is noteworthy that Reliance has declined to either confirm or deny any such developments. Technically, USDINR pair has failed to close above 73.62-65 levels, which is 38.2% retracement of the move from 75.05 to 72.75. Thus 73.62-65 levels remains a key resistance for the pair and near term support 73.22-25 levels

Currency Market Updates: 10 Sep

Globally, EUR/USD rebounded above 1.18 handle after leak reports of improved sentiments in ECB’s economic survey. EUR/USD pair will take further cues from ECB monetary policy meeting, scheduled later during the day. It is noteworthy that ECB is likely to announce changes in monetary policy settings, though they might way different than FED’s average inflation targeting. Last month, FED has announced average inflation targeting, which should allow FED to keep interest rates lower for a longer period. On the equity front, Selling pressure in US equity markets paused as Dow recovered nearly 1.5% after losing more than 5% in the last three trading sessions.

On the domestic front, 10-year bond yields are likely to hover around 6% handle amid a drop in crude prices and concerns of higher borrowing in the near term. Equities are likely to rebound tracking its global peers. On the currency front, USDINR pair is likely to open lower near 73.45 levels amid weakness in the US dollar. US dollar has retreat against emerging currencies lending support to likely rupee gains. Technically, USDINR pair has failed to close above 73.62-65 levels, which is 38.2% retracement of the move from 75.05 to 72.75. Thus 73.62-65 levels remains a key resistance for the pair and near term support 73.22-25 levels. For intraday prefer to sell near 73.45 with stop 73.55 for a target of 73.28

Currency Market Updates: 2-Sep

Globally, ECB’s member Lane commented that EUR/USD levels do impact monetary policy of Euro-zone. This lead to sharp retracement in Euro to 1.19 handle from key resistance (on monthly chart) of 1.2011 levels. US’s ISM manufacturing PMI released at 56 levels against previous reading of 54.6.

On domestic front, 10 year bond yield is trading close to key support near 5.92-95% levels. RBI has clarified that additional HTM category bonds are only for fresh G-sec issuance i.e. RBI is keen to manage government borrowing plan without disrupting the market. USDINR could held to its overnight gains and now trading below 73 handle. USDINR remains a sell on uptick candidate with resistance at 73.25 levels and support at 72.75 levels.

Currency Market Updates: 28 Aug

 

Globally, US FED president, Powell announced that FED will target average inflation of 2%, which necessarily means that FED will allow inflation to overshoot 2% to make-up for lower inflation in earlier period. Thus, interest rate hikes and its quantum would be later and lower.  Ironically, market reaction to FED’s policy change was a bit counter intuitive as US 10 year bond yield surged more than 10 bps to 0.77%. On other hand, Dollar index and US equity were largely flat after the speech.

On domestic front, G-sec bonds are likely trade with bearish bias amid spike in US yields. Interestingly, RBI’s operation twist of INR 20,000 cr remained insignificant in stemming the fall in bond prices. India’s 10 year bond yield is trading near 6.19% can spike toward 6.30% in short term. Yesterday, USDINR pair continued its downward journey as RBI was yet again missing from action. USDINR pair has tumbled to 73.60 levels in early trades. On weekly charts, USDINR pair has significant support near 73.50-55 levels, if broken on weekly basis there is little supports till 72.00

Currency Market Updates: 27-Aug

Globally, US equity markets closed flat after the release of core-durable goods data.Durable and core-durable goods orders increased by 11.2% and 2.4% respectively. US 10 year bond yield eased slightly from key resistance levels of 0.7%. US treasuries will take further cues from speech of FED Chair, Powell, which is scheduled later during the day. EUR/USD pair continued to consolidate near 1.1830 levels.

On domestic front, Government 10 year bond yield re-surged to 6.21% amid concerns of rising inflation and government borrowing. Yesterday, USDINR pair spiked 74.45 in first half and gave up most of its gains in second. USDINR pair has immediate resistance near 74.45-50 levels and immediate support near 74.15-20 levels. Intraday range seen as 74.15-74.45

Currency Market Updates 26 Aug

 

Globally, US equity markets closed in red after the release of disappointing US consumer confidence data. US consumer confidence released at 84.8 against the previous reading of 91.7. US dollar index remained broadly unchanged as it seen consolidating near 93 handle. US dollar index will take further cues from speech of FED Chair, Powell, which is scheduled for Thursday.    

On domestic front, 10 year bond yield eased after RBI’s operation twist announcement of INR 20,000 cr. It is noteworthy that northward journey of yield was initiated by MPC’s meeting minutes. MPC has been clearly uncomfortable with spike in inflation in recent months. Yesterday, USDINR pair gave away its intra-day gains after retesting 74.50. Intra-day range seen as 74.08-74.50.  

Currency Market Updates: 25 Aug

 

Globally, US equity markets rallied more than 1% after the positive news regarding US-China phase 1 trade deal. EUR/USD pair is trading flat near 1.1815 levels amid lack of key economic data from Eurozone and US. USD/JPY pair is trading in tight range between 105.69-106.10 levels.

On domestic front, RBI has announced INR 20,000 Cr bond operation twist; RBI will simultaneously buying long term (2024-2032) securities and selling short term (2020) securities. It seems that RBI is uncomfortable with spike in India’s 10 year bond yield, which had rallied to 6.22%. On currency front, partially convertible rupee witnessed sharp gain on chunky inflow coupled with lack of volume and peculiar absence of RBI. It is noteworthy that USDINR market depth has certainly reduced in covid enforced truncated market environment. Thus accentuating one-off volatile events in rupee markets. Technically, USDINR pair has given a break-down of contracting triangle formation. USDINR pair has immediate resistance at 74.50 levels and immediate support near 74.08-10 levels. Intraday range seen as 74.08-74.50

Currency Market Updates: 24 Aug

 Globally, US dollar seems to recovering after the release of US flash manufacturing and service PMI data at 53.6 and 54.8 respectively. EUR/USD pair slipped below 1.18 handle after the release of weaker service and manufacturing PMI data. Asian equity continued to trade with biddish bias with Hang Seng index is trading nearly 1.5% in green.

On domestic front, equity markets are trading in green with nifty index up nearly 0.6%. India 10 year bond yield spiked above 6% after release of MPC's meeting minutes. It is note-worthy that MPC had kept interest rates unchanged due to spike in inflation. USDINR pair is trading flat near 74.90 levels. USDINR pair might find some support amid recovery in US dollar index. Intra-day range for the pair is seen 74.85-75.05

Currency Market Updates: 21 Aug

 

Globally, risk rally in financial markets took a breather after the release of FED meeting minutes on Wednesday. FED official raised the growth concerns in US economy amid pandemic and need of fiscal stimulus. Consequently, EUR/USD pair tested key support near 1.18 handle before rebounding to 1.1860 level. Overall, risk rally likely to resume with a mild recovery in Dow and Asian indices trading in green. EUR/USD pair will take further cues from Europe and US PMI data, due to release later during the day.

 

On the domestic front, Reserve bank of India’s MPC’s meeting minutes underlined shortcoming of inflation targeting regime in India (owing to over-dependence on food inflation, which is more driven by supply-side). While the economy is reeling under pandemic, RBI might have to take a course correction to stem CPI inflation. It is noteworthy that CPI inflation has surged to 6.93% in Jul primarily on account of food inflation, which surged to 9.6%. USD/INR pair is likely to open near 74.95 levels. Technically, USDINR pair is forming a contracting triangle formation, a break above 75.20 can lead to a substantial rally in the pair. The range for the day is 74.85-75.13.

Currency Market Updates: 15-Jul

Globally, US equity market gained another 2% after the release of better than expected CPI inflation. US CPI released at 0.6% m-o-m basis against previous reading of negative 0.1%. On the other hand, Euro continued to trade with biddish bias against its US counterpart as EUR/USD pair surged to 1.1420 levels. Technically, EUR/USD pair has multiple resistance b/w 1.1430-1.1450. We can initiate short EUR/USD position near 1.14 handle with a stop of 1.1450 and a target of 1.1270. EUR/USD pair will take further cues from ECB meeting, scheduled tomorrow.  

On the domestic front, the expectations of further easing by RBI have reduced after the release of stronger CPI inflation in June. CPI inflation spiked to 6.09% in June-20 against 5.91% inflation in March-20. It is noteworthy that government had not declared CPI data for April and June. Interestingly, perishable food inflation i.e. vegetable inflation fell to 1.86% and fruit inflation contracted by 0.68%. Overall food inflation remained elevated near 7.87% due to surge in prices in non-perishable category. USD/INR pair is trading at 75.30 levels. USDINR pair has resistance near 75.45-75.50 levels and support at 75.25 levels.

Currency Market Updates: 10 Jul

Globally, the EUR/USD pair witnessed significant selling above 1.1350 levels. EUR/USD pair slipped further to 1.1275 after the release of US unemployment claims. US unemployment claims released at 1314k against the previous reading of 1413k. On the other hand, US equity markets witnessed mild correction as Dow Jones fell by more than 1%.

On the domestic front, Nifty is trading 0.5% down at 10760, tracking weakness in US equity markets. India 10 year benchmark bond yield is trading flat near 5.78%. The partially convertible rupee started to weaken as fundamental took back centre stage after completion of large inflow. USDINR pair is trading at 75.25 levels. USDINR pair has immediate resistance at 75.45-50 levels and support at 75.00 levels

Currency Market Updates: 8-Jul

Globally, the Reserve bank of Australia kept monetary policy stance unchanged with interest rate at 0.25%. Besides other FED members, Quarles also raised the concerns over economic recovery amid rising COVID-19 cases in US. On the other hand, EUR/USD pair is trading flat near 1.1275 levels after the release of German industrial production, which grew by 7.8% on a weaker base.

On the domestic front, Equity markets are holding well with nifty near 10800 levels despite the mild correction in US markets. In last two days, One of large corporate paid USDINR forward premium across the tenure leading June premium spiking to 292 levels. USDINR pair has shown an early sign of recovery with pair rebounding to 74.94 from 74.67 levels. Overall, USDINR pair has support near 74.65-70 levels and resistance near 75.10-15 levels

Currency Market Updates: 2 Jul

Globally, as FED meeting minutes, US economic data for Apr-June quarter is expected to dismal and US economy would require ultra-supportive monetary policy to support economic recovery. US FED members also discussed about the yield curve controlled. (A policy measure implemented by Bank of Japan). US manufacturing PMI data surprised on upside at 52.6 against previous reading 43.1. On the other hand, Euro manufacturing PMI released below 50 at 47.4.

On domestic front, GST collection in June month stood at INR 90,917 Cr. It is noteworthy that as Government had allowed relaxation of GST tax filing in April, May. A lot of transactions of previous months were filed in June. 10 year benchmark bond yield fell to 5.84%. USDINR pair trading flat near 75.50 levels. USDINR pair has support near 75.35-40 levels and resistance near 75.80-85

Currency Market Updates:1 Jul

Globally, noted immunologist Anthony Fauci warned against the possibility of 100k daily covid cases in US. US equity markets continue to rally largely detached of underlying conditions. EUR/USD pair is trading flat near 1.1220 levels. The pair will take further cues from manufacturing PMI data of US and Europe.

On domestic front, India witnessed marginal current account surplus of $0.6 Bn in Jan-Mar-20. Current account surplus can be attributed to narrowing trade deficit (due to lower crude and slowing economy), higher service and private receipts. On FY basis, Current account deficit narrowed to 0.9% of GDP in FY 20 against 2.1% of GDP in FY19. USDINR pair is trading flat near 75.55. USDINR pair has immediate support near 75.35-40 levels and immediate resistance at 75.80-85 levels.

Currency Market Updates: 30th June

Globally, German CPI inflation printed on 0.6% on m-o-m basis against previous reading of -0.1%. EUR/USD pair is trading flat near 1.1240 levels. US equity markets recovered sharply as Dow Jones rebounded to 25.595 levels, nearly 2.3% higher than Friday’s close. US has suspended special treatment for Hong Kong. On other hand, Chinese manufacturing and non-manufacturing PMI released better than expected at 50.9 and 54.4. It is noteworthy that other major economies are struggling with PMI data below 50.

On domestic front, Reserve Bank of India announced another round of operation twist, where in RBI will simultaneously buy (Long term) and sell (Short Term) government security worth INR 10,000 Cr. RBI will buy govt bonds of long maturities (2027,2029,2031,2033) and sell govt bonds of short maturities (2020 & 2021). Operation twist is intended to flatten the yield curve. Today (30^th June) RBI will revalue its FX reserve and balance sheet as per year ending process. Thus, today’s USDINR price closing and RBI Fixing rate hold a lot of significance. Interestingly, there has been a theory in markets that RBI has been proactively intervening in FX markets to keep rupee appreciation in check. Under the new Economic capital framework (ECF) higher value to USDINR may allow RBI to announce higher dividends. USDINR pair has immediate support near 75.35-40 levels and immediate resistance at 75.80-85 levels.

Currency Market Updates: 26 June

Globally, US equity markets recovered a bit after release of durable goods order data, which grew sharply by 15.8% m-o-m on a lower base. US dollar rebounded above 97 levels, gains in US dollar were further supported by concerns of second wave of covid cases. German consumer climate released at -9.6 against previous reading of -18.6.

On domestic front, Government bonds are trading with weakening bias as benchmark 10 year bond yield spiked to 5.91%. Indian rupee is trading with strengthening bias amid expectation of inflow of Jio-Facebook deal. Technically, USDINR pair has strong support near 75.40-75.45 levels, a break below might lead the pair to 75.00. USDINR pair immediate resistance at 75.85 levels.

Currency Markets Update 25 June

Globally, US equity markets fell more than 2.5% amid the concerns of second wave of corona virus. US dollar index recovered a bit to 97.20 levels, it will take further cues from US final GDP data for Jan-Mar’20 quarter, US economy is likely to contract by nearly 5%. German ifo business climate released at 86.2 against 79.7 previous month. 

On domestic front, IMF has sharply lower India’s GDP forecast, as it expect Indian economy to contract by 4.5% in FY21 against an earlier growth projection of 1.9%. As per IMF, impact of this pandemic is likely to felt through currency financial year, as it expect GDP to contract in all four quarters. On the other hand, Government has announced that urban and multi-state co-operative banks will be under supervision of RBI. This step has been taken as a course correction after the fall out of PMC bank. On flows front, USD 5.7 bn Jio-Facebook deal has been approved by CII, market is expecting that flow might hit on-shore in coming weeks. USDINR pair is trading flat near 75.67. USDINR pair has near support at 75.45-50 levels and resistance at 75.80-85 levels.

Currency Market Update: 24 June

Globally, manufacturing and service PMIs, although below 50, but beat the expectation in Europe and UK. EU’s manufacturing PMI released at 46.9 against expectation of 43.8 and service PMI released at 47.3 against expectation of just 40.5. Consequently, EUR/USD pair first spiked to 1.1350, before settling near 1.1320 levels. On the other hand, Boris Johnson announced that UK will withdraw lock down measures in July, to support economic activity.

On the domestic front, Indian and Chinese armies announced the disengagement at LAC border, leading to rally in rupee and equity markets. Nifty index is trading in green near 10,550 levels, multi month high. Partially convertible rupee gained nearly 30 paisa against US counterpart. The weakness in USDINR pair is further supported by a decline in the US dollar index, which fell to 96.6 levels. USDINR pair has near support at 75.45-50 levels and resistance at 75.75-80 levels.

Currency Market Updates: 23 June

Globally, Equity markets witnessed huge volatility after yet another miscommunication on US-China trade deal. Markets stabilized after Trumps tweet – “The China Trade Deal is fully intact. Hopefully they will continue to live up to the terms of the Agreement!” US dollar traded with weakening bias as EUR/USD rebounded to 1.1263. The gains in EUR/USD were further supported by a slight improvement in consumer confidence. Going forward, Euro will take further cues from flash PMI data, due to release later during the day.

On domestic front, 10 year benchmark bond yield spiked to 5.89 largely on supply concerns. Nifty index is trading flat near 10350 levels. Partially convertible rupee witness mild gains against US dollar amid broader dollar weakness. USDINR pair is trading nearly 20 paisa lower at 75.85. USDINR pair has immediate support at 75.70 and immediate resistance at 76.10.

Currency Market Updates: 22 June

Globally GBP/USD recovered a bit after the release of UK retail sales numbers. UK retail sales rebounded sharply by 12% on a lower base. China kept its monetary policy stance unchanged with 1 year lending rate at 3.85%.

On domestic front, Prime Minister, Modi tried to mellow down tension b/w India and China with ambiguous remarks at all party meet. It seems that tension b/w two Asian giants should gradually reduce in coming weeks. Nifty index surged to 10385 levels, led by gains in Glenmark Pharma, which received approval for coronavirus drug. USDINR pair is trading flat near 76.15. USDINR pair has support at 75.80 and resistance near 76.35.

Currency Market Update - 15 June

Globally, economic data continued to be terrible as UK’s GDP contracted by 20% in month of May. GBP/USD pair fell to its two weeks low of 1.2475. Cable came under further pressure amid the reports that UK-EU trade negotiation might not extend beyond deadline. Chinese industrial output increased by 4.4% in month of May against expectation of 5%.

On the domestic front, India released truncated CPI inflation numbers for second consecutive month, as “the price collection of Consumer Price Index (CPI) through personal visits of price collectors was suspended with effect from 19th March, 2020”. Food inflation remained elevated at 9.28% owing supply chain constraints in the economy. USDINR is pair is trading with a biddish bias at 75.80. USDINR pair has support near 75.60 and resistance near 76.10.

Covid-19: Rich Man's Disease?

As Covid-19 is infectious disease, policy makers are trying to observe various patterns in which disease spread. At a very basic level, disease spread via human contact and thus policy makers are trying to implement social distancing. Now Can you answer this? There are two cities P & Q, P has more people returning from foreign soil than Q, then which city should have higher number of Covid-19 infections?   IF your response is ‘P’! We are on the same page. Of-course, final number of infections and total deaths will depend on other factors like health care infrastructure and policy intervention. But initial trend of infection should suggest that P might have more infected people than Q.

Now can you answer this?  whether there is a correlation b/w GDP of state and number of infections? If yes then what?

Full Article - https://covidlive.info/covid-19-economic-impact/is-covid-19-turning-out-to-be-a-rich-mens-disease/3443/

https://www.buzzfeednews.com/article/kjh2110/the-10-most-bizarre-correlations
http://statisticstimes.com/economy/gdp-of-indian-states.php
https://www.mohfw.gov.in/

Did he miss her?

They were like binary building blocks 0 & 1, they can’t even express them self without one another. They were meaningless separately and mutually exhaustive together. They can express every feeling together, but turn expressionless alone.  He was the big zero and She was the one. Alone He(0) has no value, no meaning,  no dream, nothing ………! But with her, he can achieve everything! Standing behind her (1000000000000), he can literally witnessed exponential growth.

On looking back, all those years they grew from (1 to 10000000); It was her who pave the path, it was her who lead from the front, it was her who shown the direction ……. He merely followed and reaped the dividend!

What if they are forced to be alone for few days? Will he miss her? Will she miss him?

Their fate would be similar to when 10 are separated, she will survive as 1 but he will die as 0. This will remind him, that he worth nothing without her, whatever he achieve or he wish to achieve have no meaning without her. His value, his happiness, his dreams all are because of her! So will you dare to ask Did he miss her?

With Love

Mathematican

Covid 19 - Cash Flow Crunch PVR Limited!

Financial accounts have three parts – Balance Sheet, Profit and Loss and Cash flow. As Rich Dad, from Book Rich Dad Poor Dad, have taught its reader that poor works for money, while money works for rich. 

https://covidlive.info/covid-19-economic-impact/impact-of-covid-19-pandemic-on-cash-flow-of-indian-economy/2725/

Currency Market 5-Mar: BoC cuts rate by 50 bps

Globally, Bank of Canada cut interest rates by 50 bps to 1.25% amid fears of Corona Virus. However, USD/CAD pair, which had spiked to 1.3431, is trading broadly unchanged at 1.3390 levels. US ISM non-manufacturing PMI released at 57.3 against previous reading of 54.9. Dow Jones rebounded more than 4% to 27,090 levels. The gains in Dow Jones were further supported as Joe Biden is leading democratic nomination with 566 delegates, while Bernie Sanders is second with 501 delegates. On other hand, South Korea has reported 438 new coronavirus cases – totaling to 5,766 cases and country also reported total 35 deaths due to virus.

On domestic front, Service PMI for Feb released at 57.5, near seven year high, suggesting green shots in the economy.  Bond markets continued to rally as 10 year G Sec yield fell to 6.23%, tracking its global peers. On currency front, USDINR pair witnessed a volatile session yesterday, amid large inflow in SBI cards IPO. SBI card IPO has been subscribed by 56.67 times in QIB category. Technically, USDINR pair has support at 72.90 levels and first resistance at 73.62 levels and second resistance at 73.90 levels

Currency Market 4-Mar: FED eases to fight Corona!

Globally, US Fed has cut interest rate by 50 bps to target range 1%-1.25%.  FED statement – “The fundamentals of the U.S. economy remain strong. However, the corona virus poses evolving risks to economic activity”.  One can wonder that – In Health emergencies, like corona virus, How can FED cut support economic activity? But then again, FED has also responsibility towards financial markets too. US 10 year bond yield slipped below 1% to 0.98% for very first time. FED future fund rates are suggesting 55% probability of another 25 bps rate cut in April meeting. On other hand, EUR/USD pair surged to 1.1150, rallying on familiar fundamental setup.

On domestic front, India reported few new cases of Corona Virus, raising concerns of a possible pandemic. RBI has also issued a statement – “coronavirus triggering risk-off sentiments and flights to safe haven. Spillovers to financial markets in India have largely been contained”. G-Sec 10 year bond yield opened the session 6.28%, which is below rising trend line support of 6.30%. Bonds are likely to trade with biddish bias amid possibility of interest rate cut by RBI. On currency front, partially convertible rupee is trading with weakening bias at 73.30 levels. The gains in USDINR pair further supported by arbitrage opportunity b/w off-shore and on-shore markets. 1-month NDF is trading 20 paisa higher, indicating buying pressure in pair. Technically, USDINR pair has filled a daily gap b/w 1-Nov/2-Nov 2018 as trading high is 73.45 levels. USDINR pair has support near 72.77 levels and first resistance at 73.45 and second resistance at 73.90 levels

Currency Market 2-Mar: Monetary Easing to calm Markets?

In line with market expectations, Global central banks started to hint towards possible monetary easing to support financial markets (which are spooked by Corona Virus) economy. US FED released a rare statement – stressing that FED will act appropriately to support economy. Similarly, Bank of Japan also issued a statement – Bank of Japan will strive to provide ample liquidity through market operations and asset purchases. Consequently, USD/JPY rebounded to 108.20 from 107.10 levels, Gold fell more than 3% to 1580 levels and Asian equities are trading in green with Shanghai composite trading 3% positive.

On domestic front, India’s GDP grew in line with expectation by 4.7% in December quarter. CSO has also revised September quarter growth to 5.1% from earlier estimates of 4.5%. GDP growth in current quarter likely to be hampered by global spread of Corona virus and seasonal decline in government spending. GST tax collection for Feb stand at 1.05 lakh cr against target of 1.15 lakh cr. Although, GST collection missed the target but a reading above 1 Lakh cr should be taken as a good sign.

Domestic equity markets are trading in green, tracking their Asian peers. 10 year G-Sec yield fell to 6.33% tracking global bond sentiments. On currency front, USDINR pair is trading near 72.20. USDINR pair has immediate support at 72.05 levels and first resistance at 72.25 levels and second resistance at 72.40 levels. Range for day seen as 72.00-72.40

Currency Market 28-Feb: Risk Off grips global markets!

Globally, Free fall in equity markets continued as Dow Jones tumbled nearly 1200 points and S&P tumbled more than 4% in a single day. In current sell off, S&P corrected more than 10% in just 6 days, which is fastest on record. US 10 year bond fell to 1.26% and USD/JPY fell to 109 handle.  Monetary easing seems to be ‘Only game in town’ as market participants expect global central banks to ease monetary policy to support markets economy. Future Fed fund rates suggest 98.5% probability of a rate cut in March meeting and nearly 80% probability of 75 bps cuts in the current year. On other hand, Euro, being funding currency, remained major beneficiary of current sell off as EUR/USD rallied to 1.10 handle.

On domestic front, sell off in Nifty, trading near 11,300, continued for sixth straight session tracking its global peers. Interestingly, domestic bonds fell despite lower US treasuries and lower crude. G-Sec 10 year bond yield have spiked after taking support near 6.32%, which is a rising trend line support zone. On data front, CSO will release India’s GDP growth number for December quarter today at 5:30 PM. Bloomberg survey has pegged expected growth at 4.7% against 4.5% in September quarter. On currency front, Indian rupee is trading with weakening bias amid sell off over Corona Virus worries. Technically, USDINR pair has taken support near 71.55 levels, which was higher end of previous range 71.20-71.55. USDINR pair has immediate support at 71.80 levels and first resistance at 72.05 levels and second resistance at 72.25 levels. Range for day seen as 71.80-72.05.

Currency Market 26-Feb: Risk Reward Favors Selling EUR!

Globally, Equity markets continued to fall as Corona Virus spreads its global footprint. Dow Jones tumbled more than 3% to 27,081 levels and FTSE fell nearly 2% to 7,017 levels. On other hand, PBoc has set Yuan stronger reference rate at 7.0126 against 7.0232. Euro has been key beneficiaries of recent risk-off swings as it has been a funding currency. The EUR/USD pair climbed to a two week high levels of 1.0865 levels. It is noteworthy that economic data in Euro-Zone has been tepid and Corona Virus has been spread in Italy and Germany. Thus, EUR/INR can be sold at near 78.10 with stop above 78.52 for a target of 77.20 levels. 

On domestic front, RBI has announced next round of LTROs as it will auction INR 50,000 Cr for three years at 5.15%. It is noteworthy that 3 year LTRO received a better response than 1 year LTRO. Moreover, flow of liquidity in 1 year is smoother than 3 year period. Consequently, domestic 10 year G-Sec yield fell to 6.34%. The gains in domestic bond markets were further supported by cheaper oil and global yields. On currency front, USDINR pair is trading 10 paisa lower than yesterday at 71.75 levels. USDINR pair has resistance at 71.90 levels and support at 71.57-71.60 levels. Range for day seen as 71.57-71.90

Currency Market 24-Feb: Financial Markets tumbles on Virus Concerns

Globally, Risk off sentiments took center stage as Corona-virus infected cases increase outside China. South Korea, Italy and Iran now have more than 760,150 and 43 cases respectively. Consequently, USDCNH spiked to 7.0550 levels, Gold prices surged to $1643 and US 10 year yield tumbled to 1.48%. As discussed earlier that financial markets were under-pricing virus risk, thus this risk off move might extend in coming days. On other hand, US PMI data disappoint as manufacturing PMI fell to 50.8 and service PMI fell to 4 year low of 49.4 levels. Consequently, US dollar index corrected to 99.20 levels before finding bids owing risk-off swings.

On domestic front, Prime Minister Modi is hosting US President Trump, on his maiden visit to India. Although, a trade deal is not on the cards, but US and India can make significant bilateral announcements. Later today, RBI will auction 1 year term repo of INR 25,000 cr at 5.15%. It is noteworthy that previous auction of 3 year term repo had attracted 8 times the notified amount. Given, Banks have little restriction and fixed price auction, they are trying to out-bid each other on amount. On currency front, Indian rupee opened the session on a weak note, tracking its Asian peers, with USDINR opening at 71.90 levels. USDINR pair support at 71.70 levels and resistance at 72.05 levels. Range for day 71.75-72.05

Currency Market 20-Feb: US dollar 33 Month High!

Globally, PBoC has cut key interest rates (1 year by 10 bps and 5 year by 5 bps) to lend support to Chinese economy, which has been hit by an outbreak of Corona Virus. It is noteworthy that PBoC has been proactive in monetary easing, earlier it has done significant liquidity injections. Chinese yuan reacted adversely as USD/CNH spiked two month high of 7.04 handle. On other hand, US FED minutes showed that FED is likely to keep interest rates unchanged in near term. FED members were broadly optimistic about US economic activity. Consequently, US Dollar surged to fresh 33 months high of 99.71 levels.

On domestic front, USD/INR pair witnessed a gap up opening at 71.74 levels against previous close of 71.54. Interestingly, Rupee witnessed a gradual recovery tracking movement in Chinese yuan, which recovered to 7.025 from intraday high of 7.0405 levels. USDINR pair is currently trading at 71.56-57. The USDINR pair has immediate support at 71.54-55, first resistance at 71.70 levels and second resistance at 71.92 levels.

Long Term Repo Operations!

“It is important not to discount the RBI! It has to be kept in mind that the central bank has several instruments at its command that it can deploy to address the challenges that the Indian economy” - Mr. Shaktikanta Das

Majority of market participants were expecting RBI MPC’s to be a mundane event with no change in interest rates. It was believed that the persisting slowdown might force RBI to remain on dovish tone despite spike in inflation. Although, retail inflation surged to 7.35% in Dec, outside the target range, but it is largely because of volatile vegetable inflation. Moreover, given lower crude prices and negative output gap overall inflation is expected to ease in coming quarters.

Interest Rate cut without sufficient transmission?  

In current cycle of interest rate cuts, RBI has already reduced rates by 135 bps and kept liquidity sufficiently positive. The transmission of excess liquidity and cuts has been lopsided across tenure. While short term rates have responded to policy adjustments the longer term yield remained sticky. For instance, overnight rates have reduced by 146 bps and 3-month CPs of non-banking financial companies reduced by 190 bps, suggesting sufficient transmission. On the other hand, 5 year government security yield reduced by 73 bps and 10 year government security yield corrected by 76 bps. Moreover, weighted average lending rates (WALR) on outstanding rupee loan corrected by just 13 bps during Feb-19 to Dec-19.

In this background, Mr. Shaktikanta Das said:“It is important not to discount the RBI! It has to be kept in mind that the central bank has several instruments at its command that it can deploy to address the challenges that the Indian economy”. RBI announced Long Term Repo Operations (LTROs) to improve credit flow and transmission in the system. RBI will conduct LTROs of INR 1 trillion in 1 year and 3 year tenure at repo rate, i.e. 5.15%.

On prima facie LTROs will increase the durable liquidity of banking system and it should lead to better transmission. It is noteworthy that Banks can not lend funds for longer tenure using overnight excess liquidity, but additional durable liquidity should allow them to lend on longer tenure buckets. Consequently, Bond markets cheered the move with a yield curve shifting lower across the tenure.

	5-Feb (Pre Policy)	17-Feb	Change
1 Year	5.45%	5.3710%	8 Bps
3 Year	6.1100%	5.7840%	32 Bps
5 Year	6.2750%	5.9490%	32 Bps
10Year	6.5050%	6.3740%	13 Bps

As above table shows, Three and five year bonds are prime-beneficiaries of LTROs as five year G-Sec bonds rallied more than 30 bps. This has resulted to nearly 105 bps transmission against 73 bps earlier. USDINR 1 year forward premium has corrected sharply from 4.16%, pre-policy, to 3.87%. USDINR 1 year forward premium points has taken support near 8 month low of 272 points and now trading at 276.50 points.

At last, Reserve Bank of India, under Shaktikanta Das, has been proactive in using new tools (USDINR Buy/Sell Swap, Operation Twist and LTROs) for monetary transmission. Thus, it might pay dividend to remain on the side of the central bank!

Currency Market 13-Feb: CPI Surges to 7.59%

Globally, China’s Hubei reported 14,840 new cases and additional 242 deaths. As per officials the sharp increase in new cases is due to inclusion of “Clinically diagnosed” patients. Interestingly, market has given muted reaction as USDJPY slipped 20 pips to 109.88 and USDCNH spiked to 6.9850 levels. On other hand, Powell painted an upbeat picture of US economy, with strong labor market and consumer demand. Although, FED governor acknowledged possible risk of Corona Virus but overall impact is still uncertain. US dollar index surged to fresh five year high to 99 handle. The US dollar will take further cues from CPI data, due to release later during the day.

On domestic front, India CPI inflation continues to remain elevated with a reading of 7.59% in January. Food inflation, which is a major contributor to the headline, remained in double digit at 13.6%. A more worrying sign is pickup in core inflation, which spiked to 4.1% tracking spike in headline. Interestingly, domestic 10 year bond yields eased to 6.45% from intraday high of 6.4880%. It is noteworthy that RBI’s MPC expects CPI inflation to ease going forward with forecast of 3.2% in Q3 FY 20-21. India’s IIP contracted by 0.3% in December against growth of 1.3% in November. On currency front, USDINR pair is trading at 71.46-47 with a biddish bias tracking broad US dollar strength, weaker yuan and weaker domestic economic data. The gains in USDINR pair were further supported by heavy buying by PSBs. The USDINR pair has immediate resistance at 71.60-65 levels and support at 71.20 levels. Range for day seen as 71.35-71.60.

Currency Market 11-Feb: US dollar near 4 month high!

Globally, US dollar index surged to fresh four month high levels of 98.86 amid strong payroll number released last week. US non-farm payroll added nearly 225k jobs against expectations of just 163K. The gains in US dollar were further supported by rally in US treasuries. US Treasuries fell to 1.56% amid concerns over Coronavirus. It is interesting that financial markets are preferring to under-price virus risk rather than over-price. Frankly, it has paid dividend till now as central banks are ready to step up in event of higher downside risk from virus. On other hand, GBPUSD is trading near its two month low of 1.2910 levels. Cable will take further cues from UK’s GDP growth numbers, scheduled to release later during the day.

On domestic front, G-Sec yield curve seems to have stabilized after rallying significantly on ‘Long term repo operation’. It is noteworthy that RBI announced INR 1 trillion LTRO operation for 1 and 3 year period at 5.15%. Given, there is no specific target for these LTRO funds, further gains in yields should be limited as bond yield might start to catch up with fundamentals. The risk to this view is fresh round of LTRO operations. On currency front, USDINR pair is trading near 71.22-23 levels. The pair has resistance at 71.30 and support at 71.09 levels. Range for day seen as 71.09-71.30.

Currency Market 6-Feb: All Eye on RBI

Globally, Risk sentiments remain in charge despite the looming concerns over Coronavirus. Consequently, US 10 year bond yields rebounded to 1.66%, USDJPY surged to 109.95 and crude oil prices recovered to $ 56 per barrel. On trade front, China confirmed tariff reduction on some goods from US to take effect from Feb-14, lending support to risk sentiments. On other hand, US dollar index surged to two month high levels of 98.30 amid stronger economic data. US ISM non-manufacturing PMI released at 55.5 levels, underling strong economic activity. Europe’s retail sales contracted by 1.6% M-o-M, fueling selling pressure in EUR/USD. EUR/USD pair is currently trading near 1.0995 levels and it has key support at 1.0980 levels.

On domestic front, Reserve Bank of India is expected to keep interest rate unchanged and should maintain an accommodative stance. MPC’s outlook towards spike in inflation can be a major trigger for bond and currency markets. Retail inflation in December has spiked to 7.35%, primarily on account of food inflation. On currency front, USDINR pair is trading flat at 71.24-25 levels despite rally in Asian peers. D-mart is likely to raise INR 4,000 cr through QIP and Adani Electricity is also likely to trade $ 1 Bn through dollar bonds. The immediate resistance for the pair is 71.32-35 levels and first support for USDINR pair is at 71.15 and second support at 71.03 levels. Range for day 71.08-71.34

Currency Market 5-Feb: RBI Monetary Policy - A Dovish Hold

Globally, financial markets witnessed a relief rally amid PBOC cut interest rate by 10 bps and flushed the banking system with 1.7 trillion Yuan. Consequently, USDJPY spiked to 109.50 and US 10 year bond yields recovered to 1.58%. On other hand, GBP/USD pair tested 1.2940 levels before recovering to 1.3020 levels. Cable has been under significant selling pressure amid concerns over trade agreements. The GBP/USD pair will take further cues from UK’s service PMI and US ISM non-manufacturing PMI numbers.

On domestic front, financial markets are keenly awaiting RBI’s Monetary Policy announcement tomorrow. RBI’s MPC committee is expected to keep interest rates unchanged with repo rate at 5.15%.

	5-Dec (Policy)	5-Feb	Change Since Dec Policy
Crude Oil	63.39	54.63	-13.82%	Positive
Indian Rupee	71.28	71.2	0.11%	Flat
Nifty	12,042.00	11,999.00	0.36%	Flat
India 10 year	6.53%	6.51%	2 Bps Lower	Flat
US 10 year	1.79%	1.59%	20 Bps Lower	Positive
CPI Inflation (Dec)	7.35%		Outside RBI target range	Negative
Trade Deficit (Apr to Dec)	$118.1 Bn		Contracted sharply owing slowing economy	Positive
Fiscal Deficit (FY20)	3.80%		In line with expectation	Positive
Fiscal Deficit (FY21)	3.50%		Conservative estimate of tax collection but high disinvestment target	Neutral
PMI Data (Jan)	55.30		Underscoring the recovery	Positive

Table – Macroeconomic Parameter

Above table takes stock of various macro-economic parameters since last monetary policy on 5^th Dec-19.

Crude prices first spiked to $70 levels amid US-Iran conflict and now have corrected to $54.50 amid concerns of virus. Crude prices are nearly 13% lower from last policy level of 63.39.

Trade deficit (Apr-Dec) fell to $ 118.1 bn as non-oil non-gold imports continue to decline owing to slowing economy.

Fiscal deficit for FY 20 is now pegged at 3.8% against a target of 3.3%. FY-21 fiscal deficit is targeted at 3.5% of GDP. It is noteworthy that for tax collection estimates nominal growth is taken as conservative 10%. Moreover, government has also provide more clarity over off-balance sheet borrowing. One fiscal risk is ambitious 2.1 trillion disinvestment target for next fiscal. Thus, overall fiscal concerns should eased significantly, lending support to continued monetary easing.

CPI inflation has breached MPC’s target range with Jan reading at 7.35%, primarily on account of above 14% food inflation. It is noteworthy that core inflation remained under control at 3.7%. MPC’s view over spike in inflation being transitory or lasting will be closely watched.

Amid this backdrop, it seems that RBI’s MPC should prefer to remain accommodative and should deliver a dovish hold policy tomorrow. Thus, India 10 year bonds might break key support of 6.48-6.50% levels and might test 6.40%.

On currency front, USDINR pair is trading flat at 71.26-27 levels. The immediate resistance for the pair is 71.32-35 levels and first support for USDINR pair is at 71.17 and second support at 71.03 levels. Range for day 71.09-71.35