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HSL PCG Currency Insight-Weekly

17 December, 2016
WEEKLY MOVEMENT MARKET WRAP UP

RUPEE SLIPS AFTER FED JOLTS


Currency Rupee remained under pressure in the week gone by, tumbling nearly 35
paise in the midst of Fedinspired volatility to end at 67.77 against US
Currency
Last
Prev.
Chg.
% dollar. The US central bank raised rates by 25 bps to 5075 bps on
(Spot) Close Chg. Wednesday for the first time in a year and projected its commitment of
DXY Index 102.95 101.59 1.36 1.3% three rate hikes in 2017.
The foreign funds were net seller in the week gone with selling around
EURUSD 1.0451 1.0561 -0.0110 -1.0%
$59.83 millions in equity and $78.19 millions in debt market. So far this
GBPUSD 1.2496 1.2572 -0.0076 -0.6% year, they have sold $6.38 billion in debt and bought $4.10 billion in
USDJPY
equities.
117.93 115.32 2.61 2.3%
In the forward market, premium for dollar firmed up owing to fresh
USDINR 67.7713 67.4175 0.3538 0.5% paying pressure from corporates. The benchmark sixmonth premium
EURINR 70.8253 71.4348 -0.6095 -0.9% for May edged higher to end at 136 paise and the farforward November
2017 contract also moved up to end at 286 paise.
GBPINR 84.3747 84.9701 -0.5954 -0.7%
For the coming week, USDINR likely to tread water ahead of year end
JPYINR 57.3500 58.7900 -1.4400 -2.4% with overall bias remains on bullish side. Technically, spot USDINR have
DGCX USDINR
support around 67.30 and resistance 68.25.
67.8794 67.5858 0.2936 0.4%

Dollar up for Eighth week of the Past 11 Weeks


RBI Reference Rate Dollar index, a basket of major rivals, hovers near its 14-year high after
the Federal Reserve earlier this week boosted the currency by signalling
more interest-rate increases are likely in 2017. The dollar advanced
Prev. %
Currency Last Chg. about 1.34% to 102.95 this week, risen in eight of the past 11 weeks. On
Close Chg.
Friday, it lost some upward momentum as signs of fresh U.S.-China
USDINR 67.7777 67.5840 0.1937 0.3% tension and end-of-week profit-taking robbed the greenback of traction
EURINR 70.7531 71.7607 -1.0076 -1.4% amid moderate FX flows and sparse liquidity. It was the first time the
government in Beijing has seized a piece of U.S. military gear since the
GBPINR 84.2341 85.1289 -0.8948 -1.1%
Chinese took a Navy surveillance plane on Hainan Island following a mid-
JPYINR 57.3800 59.0600 -1.6800 -2.8% air collision in April 2001. The U.S. on Friday demanded the return of the
drone.
The benchmark 10-year U.S. Treasury note yields posted six straight
GOI 10 Yr. Bond Yield weeks of gains. On the week, 10-year yields have gained 13 basis points
to settle 2.60%.
Prev. % Week end trading was driven by risk avoidance, a theme likely to
Instrument Last Chg.
Close Chg. continue next week as markets wind down ahead of year-end holidays.
Though, the outlook for the dollar index remains bullish with near term
697GS2026 6.5060 6.4410 0.0650 1.0%
support around 100 while would head towards 104.82 and 109.50.

PRIVATE CLIENT GROUP [PCG]


WEEK AHEAD
In the week ahead, China's MNI business survey will provide one of the first gauges of China's growth in December. In Japan, November
trade data and the October all industry activity index are due. The central banks of Japan expected to keep policy on hold.
U.S. Personal spending probably picked up in November as Americans began their holiday shopping and incomes continued to improve,
indicating households remain a mainstay of U.S. economic growth. Other U.S. data next week include reports on November orders for big-ticket
goods like planes and appliances, and sales of new and previously-owned homes.
Japan
The yen's decline helped inflate the value of exports. Relief from yen strength will increase the competitiveness of Japan's shipments, which
have been bottoming out. Japan's trade balance likely maintained a trend of improvement in November. The consensus expects the surplus to
have widened to 520.3 billion yen ($4.4 billion) on a seasonally-adjusted basis from 474.3 billion yen in October.
The BOJ is likely to keep policy unchanged at its two-day meeting ending on Dec. 20. Indications from officials suggest they are confident so
far in the effects of the new yield-curve control framework. The decision at the last meeting to push back the timing of achieving 2% inflation
suggests the BOJ is willing to be patient.
Japan's All Industry Activity Index - a supply-side gauge of economic growth - may have risen for a fifth straight month in October. Early data
showed tertiary industry activity rising 0.2% month on month, while industrial production was unchanged.
China
Chinas Market News International (MNI) will update their business survey to December, providing one of the first measures of growth
momentum in the final month of the year. November's reading came in at 53.1, pointing to a robust pace of expansion.
U.S.
The U.S. economy probably expanded at a 3.3% annualized rate in the final estimate of third-quarter gross domestic product, according to
the median estimate of economists as of Dec. 14. The figure had been put at 3.2% last month, up from an initial reading of 2.9%.
Orders for U.S. durable goods - items meant to last at least three years - probably declined in November on fewer bookings of commercial
aircraft. Demand, excluding transportation equipment, is projected to increase, as per the forecasts.
UK
UK Office for National Statistics' releases is likely to be the first look at the performance of the services sector in October. The probable
confirmation that the economy expanded by 0.5% in 3Q, down from 0.7% in 2Q, is likely to attract less attention. The ONS will also release
revisions to the current account, having announced there was a processing error in data since January 2015. The figures will probably show
that the current account deficit hasnt been as wide recently, though the gap is still likely to be large by historical standards.
Europe
The first reading of consumer confidence for December should signal euro-area GDP growth is likely to accelerate in 4Q from the 0.3%
quarter-over-quarter pace in 3Q, as other surveys have indicated.

WEEKLY PRICE - VOLUME - OI (PVO)


PREV. OPEN PREV.
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 Dec16 67.8050 67.5225 0.4% 1808945 1466588 23.3% 655620 882184 -25.7%
NSE EURINR Future Dec16 70.9900 71.6875 -1.0% 37054 39052 -5.1% 47318 50064 -5.5%
NSE GBPINR Future Dec16 84.4700 85.1650 -0.8% 28012 28619 -2.1% 38011 31300 21.4%
NSE JPYINR Future Dec16 57.4925 58.9725 -2.5% 43908 36504 20.3% 25762 20471 25.8%

PRIVATE CLIENT GROUP [PCG]


TECHNICAL OUTLOOK SPOT USDINR
USDINR Dec. Future CMP 67.80
DAILY CHART
Weekly
Currency
Pivot

Resistance 2 68.23
Resistance 1 68.02
Pivot 67.74
Support 1 67.53
Support 2 67.26

BUY USDINR DEC FUT. FOR THE


TARGETS OF 68.18 AND 68.36, SL
67.60
Dollar Index has broken out on
the medium to long term charts.
It has reached a level of 103 and
sustaining around that.
Rise in the dollar index would also
have negative impact on rupee
against the dollar. Therefore,
USDINR pair is expected to go up
from here.
Going forward, we expect the pair
to retrace 50% and 61.8% of the
fall seen from 68.86 to 67.32
during 29th Nov to 8th Dec 2016.
Those resistance levels are placed
at 68.18 and 68.36.
Support for the pair is seen at
67.60 odd levels, which can be
kept SL in Longs.

PRIVATE CLIENT GROUP [PCG]


TECHNICAL OUTLOOK SPOT EURINR
EURINR Dec. Future CMP 71.01
WEEKLY CHART
Weekly
Currency
Pivot

Resistance 2 72.65
Resistance 1 71.83
Pivot 71.33
Support 1 70.51
Support 2 70.00

DOWNTREND CONTINUES;
Pair fell almost 1% in the last
week, continuing with its down
trend holding for last many
weeks.
Lower tops and lower bottoms
are intact on the daily chart. So,
existing trend is bearish
RSI on the daily and weekly
chart has reached oversold zone
and that is why confidence of
shorting at this levels is low at
this point of time.
There is a long term support
seen between 69.70 to 70 odd
levels in EURINR Dec Fut.
The level of 72.50 would act as a
strong resistance going forward.
We advise traders to wait for the
confirmation of the bullish trend
reversal, till then remain on side-
lines.

PRIVATE CLIENT GROUP [PCG]


TECHNICAL OUTLOOK SPOT GBPINR
GBPINR Dec. Future CMP 84.46
WEEKLY CHART
Weekly
Currency
Pivot

Resistance 2 86.60
Resistance 1 85.53
Pivot 84.88
Support 1 83.81
Support 2 83.16

SELL GBPINR DEC FUT. AROUND


85.60 TGTS 83.50 & 82.40, STOP
LOSS 86.90
On the week ended 9th Dec. 2016,
GBPRINR Pair formed bearish
engulfing pattern on its weekly
chart. On week ended 16th Dec,
pair confirmed the bearish trend by
registering follow up selling.
Overall trend of the pair has been
bearish with lower tops and lower
bottoms on the weekly and monthly
charts.
Oscillators like MACD and DMI have
turned bearish on daily and weekly
charts.
Supports for the pair seen at 83.50
and 82.40, while resistance for the
same seen at 86.
We advise selling GBPINR Dec Fut.
Around 85.60 for the targets of
83.95 and 82.40, keeping stop loss
at 86.90

PRIVATE CLIENT GROUP [PCG]


TECHNICAL OUTLOOK SPOT JPYINR
JPYINR Dec. Future CMP : 57.5

Currency
Weekly WEEKLY CHART
Pivot

Resistance 2 59.51
Resistance 1 58.50
Pivot 57.92
Support 1 56.91
Support 2 56.33

JPYINR DEC. FUT. HOLD SHORT


SELL WITH REVISE SL 58 & TGT
56.50
Last week, We advised short sell
in JPYINR Dec. Fut. at 58.97
level for Target 56.50.
Pair has reached below its 200
Weeks moving average support,
indicating inherent weakness in
the Yen.
Since our advise of short selling
communicated, as of now pair
formed low at 57.33,
approaching towards our
anticipated target.
Pair has been registering the
weekly fall for last 6 consecutive
week and due to that RSI has
reached oversold on short term
charts
Considering the setup of JPY
against the dollar, we advise
remaining short in JPYINR with
the revised SL at 58.
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 DEC. MONTH OPTION DISTRIBUTION

Data Interpretation:
The highest Open interest had been seen in 68 strikes indicating near term strong resistance for the near month future. In
the week gone by we had seen short covering in 67.50 put strikes as trader cover position around 1.40 lakh contracts.
While 67.50 call witness addition of 50 thousand contract suggesting bargain buying at lower level.
The near month put call ratio open interest stood at 0.70 from previous weeks 0.80 considered as oversold indicating
bargain buying in the pair. The overall distribution saw support in the range of 67.30 to 67.00 while resistance around
68.10-68.25.

PRIVATE CLIENT GROUP [PCG]


USDINR FUTURE OPEN INTEREST CHANGE

Data Interpretation:
After two consecutive weekly loss, Spot USDINR registered gains of 0.5% to settle 67.77. The pair taken support at 67.32,
the 61.8% Fibonacci support adjoining recent high of 68.86 and low of 66.34. In the week gone by, the USDINR Dec
future ended at 67.81 gains 0.4%. We have seen fresh long near support as there were addition 3.47 lakh contracts in
open interest during the week.
USDINR December future could continue positive bias for the coming week with down side support around 67.40 and
resist around 68.30.

PRIVATE CLIENT GROUP [PCG]


INDIA FOREX RESERVE
Indian Foreign Exchange Reserves (US$ Billions)
Wkly Chg. 9-Dec 2-Dec 25-Nov 18-Nov 11-Nov 4-Nov
Total Reserves -0.88 362.99 363.87 365.30 365.50 368.23 367.16
Foreign Currency Assets -0.87 339.26 340.13 341.08 341.27 343.92 341.94
Gold +0.00 19.98 19.98 20.46 20.46 20.46 21.4
Special Drawing Rights +0.00 1.44 1.44 1.44 1.44 1.47 1.46
Position in IMF -0.01 2.30 2.31 2.31 2.32 2.37 2.35

FOREIGN FUND FLOW VS USDINR

Positive Net Foreign Equity Invt.


Negative Net Foreign Equity Invt.
Positive Net Foreign Debt Invt.
Negative Net Foreign Debt Invt. Foreign Fund Sells Ahead of Year-end

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 103.08 103.27 102.62 102.95 (0.07) 1.34 2.53 7.12
Euro Spot 1.0414 1.0474 1.0401 1.0451 0.36 (1.04) (2.24) (6.31)
British Pound Spot 1.2418 1.2509 1.2383 1.2496 0.63 (0.60) 0.43 (3.89)
Japanese Yen Spot 118.18 118.43 117.47 117.93 0.21 (2.21) (7.50) (13.26)
Indian Rupee Spot 67.835 67.8739 67.735 67.7713 0.09 (0.52) 0.26 (1.16)
Brazilian Real Spot 3.3712 3.4116 3.3441 3.3879 (0.67) (0.23) 1.13 (3.69)
Australian Dollar Spot 0.7358 0.737 0.7266 0.7304 (0.73) (1.95) (2.35) (2.50)
South Korean Won Spot 1182.9 1185.07 1181.13 1183.77 (0.46) (1.51) (1.21) (5.23)
S. African Rand Spot 13.9663 14.1315 13.8881 14.0325 (0.45) (1.69) 1.96 1.07
Canadian Dollar Spot 1.3335 1.3393 1.3319 1.3336 0.00 (1.18) 0.82 (0.93)
Swiss Franc Spot 1.03 1.0312 1.0242 1.0261 0.38 (0.88) (2.36) (4.45)

MAJOR COMMODITIES
1 DAY 5 DAY 1 MONTH 3 MONTHS
COMMODITY OPEN HIGH LOW CLOSE
(% CHG) (% CHG) (% CHG) (% CHG)
GOLD 1128.5 1141.38 1126.1 1134.88 0.57 (2.15) (7.36) (13.39)
SILVER 15.9703 16.2778 15.934 16.0959 0.79 (4.55) (5.20) (14.32)
CRUDE OIL 51.1 52.08 50.5 51.9 1.96 0.78 12.58 15.18

MAJOR INDICES
1 DAY 5 DAY 1 MONTH 3 MONTHS
INDEX OPEN HIGH LOW CLOSE
(% CHG) (% CHG) (% CHG) (% CHG)
Nifty 50 8178.2 8178.7 8127.5 8139.5 (0.17) (1.48) 0.81 (7.59)
S&P BSE SENSEX INDEX 26548.7 26594.6 26455.2 26489.6 (0.11) (0.96) 1.30 (7.49)
DOW JONES INDUS. AVG 19909.0 19923.2 19821.0 19843.4 (0.04) 0.44 5.17 9.51
S&P 500 INDEX 2266.8 2268.1 2254.2 2258.1 (0.18) (0.06) 3.49 5.56
NASDAQ COMPOSITE INDEX 5467.8 5474.6 5426.0 5437.2 (0.36) (0.13) 2.17 3.86
FTSE 100 INDEX 6999.0 7038.4 6990.4 7011.6 0.18 0.83 3.48 2.91
CAC 40 INDEX 4815.4 4857.0 4804.7 4833.3 0.29 1.45 7.30 9.99
DAX INDEX 11368.6 11451.6 11357.2 11404.0 0.33 1.79 6.93 9.93
NIKKEI 225 19438.4 19440.0 19360.4 19401.2 0.66 2.13 7.98 17.45
HANG SENG INDEX 21996.4 22155.1 21965.7 22020.8 (0.18) (3.25) (1.45) (6.50)
SHANGHAI SE COMPOSITE 3111.5 3128.9 3106.3 3123.0 0.17 (3.40) (2.19) 3.20

PRIVATE CLIENT GROUP [PCG]


ECONOMIC EVENTS NEXT WEEK
Date Time Country Event Period Survey Prior
12/19/2016 15:30 EC Construction Output YoY Oct -- 1.80%
12/19/2016 20:15 US Markit US Services PMI Dec P -- 54.6
12/20/2016 14:30 EC ECB Current Account SA Oct -- 25.3b
12/20/2016 JN BOJ Policy Rate 20-Dec -0.10% -0.10%
12/21/2016 17:30 US MBA Mortgage Applications 16-Dec -- -4.00%
12/21/2016 20:30 EC Consumer Confidence Dec A -6 -6.1
12/21/2016 20:30 US Existing Home Sales Nov 5.52m 5.60m
12/22/2016 05:31 UK GfK Consumer Confidence Dec -7 -8
12/22/2016 19:00 US GDP Annualized QoQ 3Q T 3.30% 3.20%
12/22/2016 19:00 US Durable Goods Orders Nov P -4.70% 4.60%
12/22/2016 19:00 US Core PCE QoQ 3Q T -- 1.70%
12/22/2016 19:00 US Initial Jobless Claims 17-Dec 258k 254k
12/22/2016 19:00 US Continuing Claims 10-Dec -- 2018k
12/22/2016 20:30 US Personal Income Nov 0.30% 0.60%
12/22/2016 20:30 US Personal Spending Nov 0.40% 0.30%
12/22/2016 20:30 US Leading Index Nov 0.20% 0.10%
12/22/2016 20:30 US PCE Deflator YoY Nov 1.50% 1.40%
12/22/2016 20:30 US PCE Core YoY Nov 1.80% 1.70%
12/23/2016 15:00 UK GDP YoY 3Q F 2.30% 2.30%
12/23/2016 15:00 UK Current Account Balance 3Q -28.7b -28.7b
12/23/2016 20:30 US New Home Sales Nov 575k 563k
12/23/2016 20:30 US U. of Mich. Sentiment Dec F 98.1 98

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
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have not received any compensation/benefits from the Subject Company or third party in connection with the Research Report.
This report has been prepared by the PCG Research team of HDFC Securities Ltd. The views, opinions, estimates, ratings, target price, entry prices and/or other parameters mentioned in this
document may or may not match or may be contrary with those of the other Research teams (Institutional, Retail) of HDFC Securities Ltd.

PRIVATE CLIENT GROUP [PCG]