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HSL PCG Currency Insight-Weekly

21 November, 2016
WEEKLY MOVEMENT MARKET WRAP UP
Rupee Slides as U.S. Treasury Yields Climb
Currency
Rupee drops, approaching support at June low, as U.S. 10-year
Treasury yields extend overnight rise after Fed Chair Yellen signalled
Currency Prev. %
Last Chg. the central bank is close to increasing interest rates. The local
(Spot) Close Chg.
currency fell 0.5% to 68.1350 per dollar on Friday after earlier
DXY Index 100.9700 99.0600 1.91 1.93%
touching 68.19, lowest since June 24. The initial support is at
EURUSD 1.0627 1.0855 -0.02 -2.10% 68.2150, June 24 low. The USD/INR advanced 1.3% in week, most
GBPUSD 1.2413 1.2596 -0.02 -1.45% since period ended Jan 15.
USDJPY 110.23 106.65 3.58 3.36% The 10 Year bond yield on 6.97% govt. bond due September 2026
USDINR 68.1375 67.2462 0.89 1.33% rose 30bp to 6.43%.
EURINR 72.4164 73.1958 -0.78 -1.06%
Indian banks are flush with cash following govt.s decision to scrap
some high denomination notes; decision increased banks capacity to
GBPINR 84.6809 84.9804 -0.30 -0.35%
fund growth, Finance Minister Arun Jaitley said.
JPYINR 61.7100 63.2500 -1.54 -2.43%
Dollar Extends Record Streak of Gains Versus Euro and Yen
DGCX USDINR 68.2082 67.8518 0.36 0.53%
The dollar posted its biggest two-week rally against the yen since
1988 amid bets that Donald Trumps administration will pursue fiscal
RBI Reference Rate stimulus, boosting the U.S. economy and triggering monetary
tightening. The greenback touched the strongest level against the yen
Prev. % since May and appreciated the past 10 trading sessions versus the
Currency Last Chg.
Close Chg. euro, an unprecedented streak.
USDINR 68.0937 67.0292 1.06 1.59% The greenback has strengthened for 10 straight days against the euro,
EURINR 72.2134 73.1155 -0.90 -1.23% the longest rally since the shared currencys debut in 1999.
GBPINR 84.4158 84.1753 0.24 0.29% The outlook for the dollar remains bullish ahead expectation of Fed
JPYINR 61.5600 62.9400 -1.38 -2.19%
interest rate hike in December.
Pound Traders Await Direction From Hammonds First Budget
Update
GOI 10 Yr. Bond Yield
Pound traders will finally get a glimpse into Britains economic future -
- and the direction of sterling -- next week. Sterling fell for a fifth day
Prev. %
Instrument Last Chg. versus the dollar Friday, bringing a halt to a two-week rally. Chancellor
Close Chg.

697GS2026 6.4290 6.7260 -0.30 -4.42%


of the Exchequer Philip Hammond will deliver his first budget update
on Nov. 23, giving investors insight into his economic policies.

PRIVATE CLIENT GROUP [PCG]


Week Ahead

European Central Bank President Mario Draghi is scheduled to present his annual report to the European Parliament. In a
speech on Nov. 18, he struck a cautiously dovish tone, saying, "We do not yet see a consistent strengthening of underlying
price dynamics." Expect Draghi to repeat that message before members of parliament, who will surely grill him for more
information about the central bank's intentions.
As usual, the preliminary reading of consumer confidence in the euro area for the month of November will reveal no details
behind the headline figure. Only the final reading, coming the week after, will disclose the full breakdown, including at a
national level. Consumer confidence has proven resilient in the region and remains well above its long-term average. After a
slight deterioration during the summer, the index is now trending upward again with gains in September and October.
The composite PMI reading for October came in at 53.3, compared with 52.6 in September. That is consistent with sustained,
albeit modest, growth momentum going into 4Q. Though the PMI is supposed to be a measure of actual output, it seems to be
sensitive to economic news as well. The U.K. measure plunged after the referendum but output held up.
Chancellor of the Exchequer Philip Hammond will have a tough task at his first fiscal event. He is likely to be faced with
forecasts showing slower economic growth, higher inflation and increased borrowing. Given that, it's unlikely he will sanction a
large scale fiscal stimulus -- he will still want to be seen making progress toward putting the public finances on a stable footing.
Investment projects and help for working families will probably head up his list of policy announcements.
The Office for National Statistics is likely to confirm the U.K. economy grew by 0.5% in 3Q. The release will contain the first
take on both the income and expenditure breakdowns of GDP and is likely to show consumers drove the economy through the
first quarter after the referendum.
23rd Nov. : U.S. MBA mortgage applications (weekly), jobless claims (weekly), FHFA home-price index (Sept.), Bloomberg
consumer comfort index (weekly), Markit manufacturing PMI (Nov. prelim.), Michigan consumer sentiment (Nov. final).
On 24th Nov. : The U.S. celebrates Thanksgiving, the holiday Abraham Lincoln made official in 1863.

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 Nov16 68.1750 67.3450 1.2% 3027095 1319175 129.5% 2822136 2612087 8.0%
NSE EURINR Future Nov16 72.4500 73.2450 -1.1% 26590 26411 0.7% 48349 54885 -11.9%
NSE GBPINR Future Nov16 84.7600 85.0500 -0.3% 26681 39344 -32.2% 48119 115424 -58.3%
NSE JPYINR Future Nov16 61.8000 63.2925 -2.4% 19627 18381 6.8% 34281 68055 -49.6%

PRIVATE CLIENT GROUP [PCG]


TECHNICAL OUTLOOK SPOT USDINR
USDINR Nov. Future CMP 68.18

Currency
Weekly DAILY CHART
Pivot

Resistance 2 68.04
Resistance 1 67.69
Pivot 67.08
Support 1 66.73
Support 2 66.12

Remain Long With 67.50 SL

The pair has surpassed the


crucial resistance of its 200
DMA.
Our bullish view in the pair is
getting vindicated, as pair
moved up nicely in the last
week.
Pair is on the verge of
registering new all time high
above 69.21 in rolling futures.
There is a clear cut symmetrical
triangle breakout on the weekly
and monthly chart.
Short term support for the Nov
fut. is placed at 67.50.
We advise trader to remain
long in USDINR Nov. Fut. For
new all time high target
above 69.21, keeping a stop
loss at 67.50 on closing
basis.
PRIVATE CLIENT GROUP [PCG]
TECHNICAL OUTLOOK SPOT EURINR
EURINR Nov. Future CMP 72.45
DAILY CHART
Weekly
Currency
Pivot

Resistance 2 76.96
Resistance 1 75.10
Pivot 73.88
Support 1 72.02
Support 2 70.80

Buy EURINR Nov Fut. above 73

Pair has recently shown a


downswing from 75.63 to 72
odd levels.
Trend has been bearish with
lower tops and lower bottoms
on the daily charts
Oscillators seems to have
claimed short term oversold
zone, indicating chances of
pullback.
Daily MACD is showing sign of
positive divergence, which can
be the result as a bullish
reversal.
Support and resistance for the
pair are placed at 72 and 75.5
respectively.
We advise going long above
73, for the targets of 74 and
75.5, keeping SL at 72 in
Nov. Fut.
PRIVATE CLIENT GROUP [PCG]
TECHNICAL OUTLOOK SPOT GBPINR
GBPINR Nov. Future CMP 84.76

Currency
Weekly DAILY CHART
Pivot

Resistance 2 87.20
Resistance 1 86.12
Pivot 84.22
Support 1 83.14
Support 2 81.24

Sell GBPINR Nov Fut. Below 84


Pair has formed strong double
bottom formation around 81
and reversed the trend towards
north.
Long term trend of the pair
remains bearish on monthly
charts
The pair formed bottom at
80.89 and now has reached at
the level around 85. So, there
has been nice up move
recently.
Strong support is placed at 84
in Nov Fut. while strong
resistance is placed at 86 in
Nov Fut.
We advise cutting longs
below 84. Fresh shorts can
be initiated below 84 with
the downside target 82,
keeping SL at 85 in Nov. Fut.

PRIVATE CLIENT GROUP [PCG]


TECHNICAL OUTLOOK SPOT JPYINR
JPYINR Nov. Future CMP : 61.80
DAILY CHART
Weekly
Currency
Pivot

Resistance 2 67.70
Resistance 1 65.49
Pivot 64.01
Support 1 61.80
Support 2 60.32

Sell JPYINR Nov Fut.

Lower top sand lower bottoms


are intact on the daily and
weekly chart.
Oscillators are showing the sign
of weakness in the pair.
Last week, Pair breached
important support of 62.64,
which happened to be major
bottom registered earlier.
Next downside target for the
pair is seen at 60.30
Resistance for the pair is seen
at 63, which can be kept as SL
in shorts in Nov Fut.
We recommend going short
in the pair with downside
target at 60.30 and 59.50,
keeping a stop loss at 63 on
closing basis.

PRIVATE CLIENT GROUP [PCG]


DOLLAR INDEX EURUSD
EURUSD: Daily Chart
DXY: Daily Chart

GBPUSD USDJPY

GBPUSD: Daily Chart USDJPY: Daily Chart

PRIVATE CLIENT GROUP [PCG]


USDINR NOV. MONTH OPTION DISTRIBUTION

Data Interpretation:
In the week gone by, USDINR Nov. Future 68.00 strike witness highest addition in open interest, on back of hedge. The
68.50 strike put added 2.89 lakh contracts while 68.50 strike call addition seen around 1 lakh contract.
As suggested in the week gone by, the continuation of upward rally was seen with the pair addition 1.2%.
In the week gone, we had seen put writing in 67.50 strike, which will act as near term support.
The option distribution indicating up trend in the pair with immediate level placed at 68.5 while 67.50 remains support.

PRIVATE CLIENT GROUP [PCG]


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

Data Interpretation:

USDINR Nov. future whopping rally of 1.20% to close at 68.18, best since June 16. The near month open interest placed
at 30.27 lakh contract from previous weeks 13.19 lakh contracts, suggesting fresh long position. The aggregate Open
interest stood at 36.62 lakh contract from previous weeks 19.77 lakh.
The derivative data suggesting, rise in price and open interest, fresh long buildup.
The pair likely to continue bullishness with higher side resistance of 68.85 with support at 67.50

PRIVATE CLIENT GROUP [PCG]


INDIA FOREX RESERVE

Indian Foreign Exchange Reserves (US$ Billions)


Wkly Chg. 4-Nov 4-Nov 28-Oct 21-Oct 14-Oct 7-Oct
Total Reserves -1.19 367.04 368.23 367.16 367.14 366.14 367.65
Foreign Currency Assets -1.15 342.77 343.92 341.94 341.92 340.9 342.39
Gold 0.00 20.46 20.46 21.4 21.4 21.4 21.4
Special Drawing Rights -0.01 1.46 1.47 1.46 1.46 1.47 1.48
Position in IMF -0.03 2.34 2.37 2.35 2.35 2.36 2.37

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 101.1 101.37 100.95 100.96 0.07 1.92 3.13 7.23
Euro Spot 1.0626 1.0629 1.0582 1.0628 0.02 (2.09) (3.21) (6.39)
British Pound Spot 1.2417 1.2436 1.2383 1.2412 (0.04) (1.46) 0.93 (5.74)
Japanese Yen Spot 110.12 110.93 109.97 110.21 (0.08) (3.23) (5.75) (9.36)
Indian Rupee Spot 68.005 68.24 68.005 68.1375 (0.46) (1.31) (2.07) (1.95)
Brazilian Real Spot 3.4327 3.4411 3.4153 3.4214 (0.01) (0.56) (6.83) (5.33)
Australian Dollar Spot 0.7406 0.7418 0.7365 0.7385 (0.28) (2.13) (3.67) (3.92)
South Korean Won Spot 1179.47 1184.54 1179.47 1183 (0.59) (1.55) (4.53) (6.40)
S. African Rand Spot 14.4242 14.6507 14.4172 14.5399 (0.80) (1.41) (4.43) (8.01)
Canadian Dollar Spot 1.3521 1.3565 1.3496 1.3496 0.19 0.34 (2.87) (5.29)
Swiss Franc Spot 1.0071 1.012 1.0066 1.0068 0.03 (1.87) (1.68) (5.21)

MAJOR COMMODITIES
1 DAY 5 DAY 1 MONTH 3 MONTHS
COMMODITY OPEN HIGH LOW CLOSE
(% CHG) (% CHG) (% CHG) (% CHG)
GOLD 1216.42 1217.94 1202.96 1210.37 (0.50) (1.41) (4.13) (10.50)
SILVER 16.676 16.7261 16.4557 16.5319 (0.86) (4.81) (6.16) (16.30)
CRUDE OIL 44.93 45.53 44.55 45.34 (0.18) 4.45 (10.43) (9.66)

MAJOR INDICES
1 DAY 5 DAY 1 MONTH 3 MONTHS
INDEX OPEN HIGH LOW CLOSE
(% CHG) (% CHG) (% CHG) (% CHG)
Nifty 50 8097.6 8129.0 8048.3 8074.1 (0.07) (5.30) (6.96) (6.91)
S&P BSE SENSEX INDEX 26270.2 26349.0 26106.8 26150.2 (0.30) (4.97) (6.78) (7.02)
DOW JONES INDUS. AVG 18866.2 18904.0 18845.3 18903.8 0.19 0.51 4.08 1.65
S&P 500 INDEX 2178.6 2188.1 2176.7 2187.1 0.47 0.91 2.22 0.00
NASDAQ COMPOSITE INDEX 5295.1 5334.1 5288.2 5334.0 0.74 2.40 1.72 1.79
FTSE 100 INDEX 6794.7 6811.6 6740.3 6757.1 (0.55) 0.40 (3.47) (1.63)
CAC 40 INDEX 4544.6 4551.6 4496.7 4507.0 (0.46) 0.40 (0.04) 1.58
DAX INDEX 10735.1 10738.0 10649.1 10663.8 (0.20) (0.04) 0.30 0.57
NIKKEI 225 18024.2 18043.7 17967.4 17967.4 0.59 3.41 5.92 8.99
HANG SENG INDEX 22239.2 22374.4 22146.9 22344.2 0.37 (0.83) (4.49) (2.95)
SHANGHAI SE COMPOSITE 3207.2 3212.4 3187.5 3192.9 (0.49) (0.10) 3.53 2.86

PRIVATE CLIENT GROUP [PCG]


ECONOMIC EVENTS NEXT WEEK

Date Time Country Event Period Survey Prior


11/22/2016 15:00 UK Public Sector Net Borrowing Oct 5.8b 10.1b
11/22/2016 20:30 US Richmond Fed Manufact. Index Nov 0 -4
11/22/2016 20:30 EC Consumer Confidence Nov A -7.8 -8
11/22/2016 20:30 US Existing Home Sales Oct 5.44m 5.47m
11/23/2016 14:30 EC Markit Eurozone Manufacturing PMI Nov P 53.2 53.5
11/23/2016 14:30 EC Markit Eurozone Services PMI Nov P 53 52.8
11/23/2016 17:30 US MBA Mortgage Applications 18-Nov -- -9.20%
11/23/2016 19:00 US Durable Goods Orders Oct P 1.10% -0.30%
11/23/2016 19:00 US Initial Jobless Claims 19-Nov -- 235k
11/23/2016 19:00 US Continuing Claims 12-Nov -- 1977k
11/23/2016 20:15 US Markit US Manufacturing PMI Nov P 53.5 53.4
11/23/2016 20:30 US New Home Sales Oct 590k 593k
11/23/2016 20:30 US U. of Mich. Sentiment Nov F 91.6 91.6
11/24/2016 00:30 US FOMC Meeting Minutes 2-Nov -- --
11/24/2016 06:00 JN Nikkei Japan PMI Mfg Nov P -- 51.4
11/25/2016 05:00 JN Natl CPI YoY Oct 0.00% -0.50%
11/25/2016 15:00 UK GDP QoQ 3Q P 0.50% 0.50%
11/25/2016 15:00 UK GDP YoY 3Q P 2.30% 2.30%
11/25/2016 15:00 UK Exports QoQ 3Q P 0.90% -1.00%
11/25/2016 15:00 UK Imports QoQ 3Q P -0.10% 1.30%
11/25/2016 19:00 US Advance Goods Trade Balance Oct -$59.0b -$56.5b
11/25/2016 19:00 US Wholesale Inventories MoM Oct P 0.30% 0.10%
11/25/2016 20:15 US Markit US Services PMI Nov P 54.8 54.8
11/25/2016 11/30 IN Eight Infrastructure Industries Oct -- 5.00%

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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PRIVATE CLIENT GROUP [PCG]