HSL PCG Currency Insight-Weekly

07 January, 2017
 WEEKLY MOVEMENT MARKET WRAP UP
Consolidation Continue Till 67.70 Holds
Currency Last week, rupee ends stable against American dollar amid strengthening
Asian currencies and foreign fund inflow in debt market. The local currency
Currency Prev. % closed at 67.96 from previous weeks 67.92 losing 4 paise or 0.1%.
Last Chg. Rupee likely to start on weak note on overnight recovery in dollar after
(Spot) Close Chg.
government lowers growth forecast to 7.1% from previous year 7.6%. In
DXY Index 102.22 102.21 0.01 0.0%
value terms, the Gross Value Added (GVA) at constant prices is anticipated to
EURUSD 1.0532 1.0517 0.0015 0.1% increase from Rs.104.27 lakh crore in 2015-16 to Rs.111.53 lakh crore in
2016-17. The GDP growth to be at 3 year low on high denomination currency
GBPUSD 1.2287 1.2340 -0.0053 -0.4%
removed from the system which created cash crunch.
USDJPY 117.02 116.96 0.06 0.1% Indias Foreign exchange reserves grew by $625.5 million and touched $
360.296 billion in the week to December 30. In the previous week, the forex
USDINR 67.9637 67.9238 0.0399 0.1%
reserves had declined by $935.2 million to $359.671 billion. Foreign currency
EURINR 71.9940 71.6770 0.3170 0.4% assets, a major component of the overall reserves, increased by $612.4
GBPINR
million to $336.582 billion in the reporting week.
84.0424 83.4892 0.5532 0.7%
Technically, USDINR still in higher top bottom formation indicating
JPYINR 58.6100 58.1100 0.5000 0.9% continuation of bullishness. Though the breach of 67.70 will lead to reversal
DGCX USDINR 68.2734 68.1431 0.1303 0.2%
in bullish trend while 68.37 and 68.86 remains resistance.

Dollar May Turn Defensive

The US Dollar spent most of week on the defensive as markets returning
RBI Reference Rate from the new year holidays went about retracing from Trump Rally
extremes. The currency paid keen attention to minutes from Decembers
Prev. % FOMC meeting. These showed that Fed officials were far less convinced of the
Currency Last Chg.
Close Chg. need for a drastic hawkish policy pivot than the markets seemed to be. The
USDINR 67.9522 67.9547 -0.0025 0.0% December jobs report presented further confirmation that the labor market is
close to full employment, as reflected by average hourly earnings growth
EURINR 71.8662 71.6175 0.2487 0.3% accelerating to a cyclical high. On Thursday, The dollar had slipped on
GBPINR 84.0976 83.4212 0.6764 0.8% Thursday following unimpressive U.S. employment data and a surge in the
Chinese yuan as Beijing made moves to shake out large bets against its
JPYINR 58.5000 58.2200 0.2800 0.5%
currency. However, the dollar index settles the week at 102.22 almost flat
from previous weeks 102.21.
Trump administration has yet to take up office and the practical implications
GOI 10 Yr. Bond Yield of their still-vague policy plans are unknown. The upcoming commentary is
likely to drive dollar movement.
Prev. % Technically, the dollar index still in higher top-bottom chart formation.
Instrument Last Chg.
Close Chg. However, Momentum oscillators showing sign of weakness as it exited from
overbought zone with negative divergence. The buck is having resistance
697GS2026 6.3890 6.5150 -0.1260 -1.9%
around 103.82 the recent top while find support 99.49.

PRIVATE CLIENT GROUP [PCG]

 WEEK AHEAD
Monday, Jan. 9
Prime Minister Narendra Modi will open an international exchange in Gift City to offer stock, bond, currency and commodity derivatives, to rival
Singapore and Hong Kong.
ECONOMY: U.S. consumer credit (Nov.), Euro-area unemployment (Nov.), Halifax U.K. house prices (Dec.),
Tuesday, Jan. 10
The prospects of lower taxes and fewer regulations have fuelled enthusiasm among small business owners. The December NFIB employment report
indicated increases in hiring plans and compensation. The latest JOLTS report pointed to a steady pace of hiring, job openings and quit rates. The
job openings rate was steady at 3.7% in October, while the rates for hiring and quits were also unchanged at 3.5% and 2.1%, respectively.
ECONOMY: U.S. NFIB small-business optimism (Dec.), wholesale inventories (Nov. final) and job openings (Nov.); China CPI (Dec.)
Wednesday, Jan. 11
U.S. President-elect Donald Trump plans a general news conference in New York City, based on his tweet. He hasnt given a press conference
since his election.
Bank of Japan releases its index of private consumption activity.
U.K. December retail sales should benefit significantly from strong demand for autos. Already-reported unit motor vehicle sales accelerated to an
annualized rate of 18.3 million, for a monthly gain of 3.0%.
ECONOMY: U.S. MBA mortgage applications (weekly); U.K. trade balance and industrial production (Nov.);
Thursday, Jan. 12
German Chancellor Angela Merkel and Luxembourg Prime Minister Xavier Bettel hold talks expected to focus on Brexit and the EUs agenda for
2017. European Central Bank publishes account of Dec. 8 monetary policy meeting.
The level of US unemployment benefit claims in the week ended Dec. 31 fell more than expected, dropping 28k to 235k -- an eight-week low --
largely due to seasonal factors that were signalling a sizable year-end increase.
India headline figure decelerated to 3.63% year on year in November, down from 4.20% in October. Demonetization may have continued to
temporarily soften inflation, due to a lack of currency notes to make purchases. Rising crude oil prices likely pulled in the other direction. Another
subdued inflation reading would support a 25-bp interest rate cut by the Reserve Bank of India in February.
ECONOMY: U.S. jobless claims, consumer comfort (weekly) and import prices (Dec.); Japan current account (Nov.) and economy watchers survey
(Dec.);
Friday, Jan. 13
US December retail sales should benefit significantly from strong demand for autos. Already-reported unit motor vehicle sales accelerated to an
annualized rate of 18.3 million, for a monthly gain of 3.0%.
ECONOMY: U.S. producer-price index (Dec.), business inventories (Nov.), Michigan consumer sentiment (Jan. prelim.) and budget statement
(Dec.); China trade data (Dec.),

WEEKLY PRICE - VOLUME - OI (PVO)

PREV. OPEN PREV. PREV.
WKLY WKLY OI VOLUME WKLY VOL.
CURRENCY PAIR CLOSE WEEK INTEREST WEEK WEEK
% CHG. % CHG. (VOL.) % CHG.
CLOSE (OI) OI VOL.
NSE INRUSD Future Jan17 68.1125 68.1025 0.01% 1761483 1520711 15.8% 867595 1100195 -21.1%
NSE EURINR Future Jan17 72.2000 71.9275 0.38% 37421 36063 3.8% 63391 72301 -12.3%
NSE GBPINR Future Jan17 84.3050 83.8250 0.57% 24727 25247 -2.1% 44300 38536 15.0%
NSE JPYINR Future Jan17 58.8175 58.3925 0.73% 27830 30760 -9.5% 25189 34320 -26.6%

PRIVATE CLIENT GROUP [PCG]

 TECHNICAL OUTLOOK SPOT USDINR
USDINR Jan. Future CMP 68.11

Currency
Weekly DAILY CHART
Pivot

Resistance 2 68.81
Resistance 1 68.46
Pivot 68.17
Support 1 67.82
Support 2 67.53

Hold USDINR Jan. Fut. with

67.85 SL
On Friday, Dollar index recouped
some of the losses seen in the
earlier sessions. This can have
bullish implications for USDINR
pair.
USINR pair has been forming
higher tops and higher bottoms
on the daily charts, indicating
bullish setup for the short term.
Immediate support for the pair
seen at 67.85, which can be kept
as a stop loss in longs.
68.50 would act as a resistance
for the pair
We would advise cutting longs if
USDINR Jan Fut. breaks 67.85
Support and traders initiate fresh
shorts below 67.85, for the target
of 67.40, keeping SL at 68.20.

PRIVATE CLIENT GROUP [PCG]

 TECHNICAL OUTLOOK SPOT EURINR
EURINR Jan. Future CMP 72.2
DAILY CHART
Weekly
Currency
Pivot

Resistance 2 72.96
Resistance 1 72.58
Pivot 71.89
Support 1 71.51
Support 2 70.82

Buy EURINR Jan Fut, Tgt 73.45,

SL 71.88
If look at the chart of EURGBP pair
then it is clearly seen that EURO is
much stronger than GBP against
the dollar. This development could
also lead to rise in EURINR and fall
in GBPINR.
EURINR pair has broken out from
the bullish cup and handle pattern
on the daily chart.
Pair has also been forming higher
tops and higher bottoms on the
daily chart.
Pair has also surpassed the crucial
resistance of 72 on closing basis.
Oscillators like RSI and MACD have
turned bullish on the short term
charts.
We advise going long in EURINR
Jan Fut at cmp for the upside
target of 73.45, keeping SL at
71.88 in Jan Fut.
PRIVATE CLIENT GROUP [PCG]
 TECHNICAL OUTLOOK SPOT GBPINR
GBPINR Jan. Future CMP 84.31
DAILY CHART
Weekly
Currency
Pivot

Resistance 2 85.04
Resistance 1 84.67
Pivot 84.12
Support 1 83.76
Support 2 83.21

SELL GBPINR JAN FUT, Tgt 83.15, SL

85
If look at the chart of EURGBP pair
then it is clearly seen that EURO is
much stronger than GBP against
the dollar. This development could
also lead to rise in EURINR and fall
in GBPINR.
For last two weeks, GBPINR pair
has been gradually going up with
low momentum. This could end up
as a dead cat bounce in overall
bearish trend.
GBPINR Jan fut. has immediate
support at 83.58, below which it
would confirm the bearish trend
reversal.
Resistance for the pair is placed
somewhere around 85.
We advise selling GBPINR at CMP
for the downside target of 83.15,
keeping SL at 85.

PRIVATE CLIENT GROUP [PCG]

 TECHNICAL OUTLOOK SPOT JPYINR
JPYINR Jan. Future CMP : 58.82

Currency
Weekly DAILY CHART
Pivot

Resistance 2 59.48
Resistance 1 59.15
Pivot 58.55
Support 1 58.22
Support 2 57.62

Likely to Consolidate
Primary trend of the pair has
been bearish, as Lower tops and
lower bottoms are well intact on
the daily and weekly chart.
However, for last 3 weeks pair
has been appreciating. Though
the momentum has been low
during the appreciation.
There is no sign of bullish trend
reversal seen on the short term
chart as of yet. The recent up
move could end up as a dead cat
bounce.
However, Pair has been able to
cross its 20 DMA resistance,
which is positive.
Considering the technical setup,
confidence to initiate either long
or short from this level is very
low and we expect trend to
remain choppy in JPYINR for the
next week.

PRIVATE CLIENT GROUP [PCG]

DOLLAR INDEX EURUSD
EURUSD: Daily Chart
DXY: Daily Chart

GBPUSD USDJPY

USDJPY: Daily Chart

GBPUSD: Daily Chart

PRIVATE CLIENT GROUP [PCG]

USDINR JAN. MONTH OPTION DISTRIBUTION

Data Interpretation:
The highest Open interest is seen on 69 call strike with open interest of 4.68 lakh contracts indicating call writing by
hedgers. Traders expecting weakness in the pair, as we have seen 92 thousand contract addition in 68 put and reduced
position by 46 thousand contracts in 68 call. However, addition in 67.50 call suggesting near term support as in the money
call buying has been seen in the week gone by.
The put call ratio recovered to 0.69 from previous weeks 0.63, indicating bullishness has reached an extreme level, as
traders anticipate a downtrend at this level.
The pair likely to see short term weakness with down side support around 67.50 while continues to resist around 69.

PRIVATE CLIENT GROUP [PCG]

USDINR FUTURE OPEN INTEREST CHANGE

Data Interpretation:
USDINR January future settles flat for third consecutive week indicating indecisiveness among the traders. However, the
weekly swing was relatively higher as it made higher highs and lower lows in last three weeks. The pair closed at 68.11
from previous weeks 68.10.
The January future started on strong note as pair witness short covering but by the end it settles near previous weeks
close. The aggregate open interest were at 23 lakh contracts from previous week 18 lakh contracts while near month at
17.6 lakh contract from previous week 15.22 lakh.
The rise in open interest with flat move in price indecisiveness among traders. The pair could trade in the range of 68.52
to 67.42 in coming week.

PRIVATE CLIENT GROUP [PCG]

INDIA FOREX RESERVE
Indian Foreign Exchange Reserves (US$ Billions)
Wkly Chg. 30-Dec 23-Dec 16-Dec 9-Dec 2-Dec 25-Nov
Total Reserves 0.62 360.29 359.67 360.61 362.99 363.87 365.30
Foreign Currency Assets 0.61 336.58 335.97 336.9 339.26 340.13 341.08
Gold 0.00 19.98 19.98 19.98 19.98 19.98 20.46
Special Drawing Rights 0.00 1.43 1.43 1.43 1.44 1.44 1.44
Position in IMF 0.01 2.3 2.29 2.3 2.3 2.31 2.31

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.

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 101.54 102.29 101.45 102.22 0.69 (0.45) 1.72 5.64
Euro Spot 1.0607 1.062 1.0525 1.0532 (0.71) 0.14 (1.74) (5.55)
British Pound Spot 1.2418 1.2431 1.2261 1.2287 (1.06) (0.43) (3.08) (2.61)
Japanese Yen Spot 115.35 117.18 115.07 117.02 (1.43) (0.05) (2.56) (11.17)
Indian Rupee Spot 67.8687 68.05 67.8038 67.9637 (0.00) (0.06) (0.09) (1.86)
Brazilian Real Spot 3.1987 3.2243 3.1884 3.2226 (0.74) 1.01 5.82 0.17
Australian Dollar Spot 0.7338 0.7355 0.7289 0.7301 (0.50) 1.29 (2.14) (3.74)
South Korean Won Spot 1181.69 1193.13 1181.69 1193 (0.57) 1.08 (1.83) (6.79)
S. African Rand Spot 13.576 13.7829 13.5667 13.7596 (1.34) (0.14) (0.82) 0.91
Canadian Dollar Spot 1.3225 1.3268 1.3178 1.3237 (0.09) 1.54 0.30 (0.14)
Swiss Franc Spot 1.0098 1.0184 1.0094 1.018 (0.81) 0.10 (0.77) (3.65)

MAJOR COMMODITIES
1 DAY 5 DAY 1 MONTH 3 MONTHS
COMMODITY OPEN HIGH LOW CLOSE
(% CHG) (% CHG) (% CHG) (% CHG)
GOLD 1180.12 1182.76 1171.05 1172.63 (0.63) 2.19 0.24 (6.52)
SILVER 16.585 16.6735 16.308 16.4912 (0.57) 3.54 (1.38) (4.78)
CRUDE OIL 53.73 54.32 53.32 53.99 0.43 0.41 3.89 3.67

MAJOR INDICES
1 DAY 5 DAY 1 MONTH 3 MONTHS
INDEX OPEN HIGH LOW CLOSE
(% CHG) (% CHG) (% CHG) (% CHG)
Nifty 50 8281.9 8306.9 8233.3 8243.8 (0.36) 0.71 (0.22) (5.22)
S&P BSE SENSEX INDEX 26929.7 27009.6 26733.3 26759.2 (0.44) 0.50 0.05 (4.64)
DOW JONES INDUS. AVG 19907.0 19999.6 19834.1 19963.8 0.32 0.73 1.05 9.45
S&P 500 INDEX 2271.1 2282.1 2264.1 2277.0 0.35 1.23 0.77 5.72
NASDAQ COMPOSITE INDEX 5499.1 5536.5 5482.8 5521.1 0.60 1.64 1.41 4.32
FTSE 100 INDEX 7195.3 7210.1 7180.6 7210.1 0.20 1.26 3.68 2.35
CAC 40 INDEX 4887.8 4911.5 4874.4 4909.8 0.19 0.98 3.06 10.34
DAX INDEX 11560.5 11605.7 11547.1 11599.0 0.12 1.03 3.53 10.56
NIKKEI 225 19393.6 19472.4 19354.4 19454.3 (0.34) 0.27 2.41 15.39
HANG SENG INDEX 22583.3 22605.7 22445.8 22503.0 0.21 3.27 (1.13) (5.65)
SHANGHAI SE COMPOSITE 3163.8 3172.0 3153.0 3154.3 (0.35) 1.88 (2.43) 4.98

PRIVATE CLIENT GROUP [PCG]

 ECONOMIC EVENTS NEXT WEEK
Date Time Country Event Period Survey Prior
01/09/2017 14:00 UK Halifax House Price 3Mths/Year Dec 5.80% 6.00%
01/09/2017 15:00 EC Sentix Investor Confidence Jan 13 10
01/09/2017 15:30 EC Unemployment Rate Nov 9.80% 9.80%
01/10/2017 01:30 US Consumer Credit Nov $18.225b $16.018b
01/10/2017 07:00 CH CPI YoY Dec 2.20% 2.30%
01/10/2017 07:00 CH PPI YoY Dec 4.60% 3.30%
01/10/2017 20:30 US JOLTS Job Openings Nov -- 5534
01/11/2017 15:00 UK Trade Balance Nov -3550 -1971
01/11/2017 15:00 UK Industrial Production YoY Nov 0.50% -1.10%
01/11/2017 15:00 UK Manufacturing Production YoY Nov 0.40% -0.40%
01/11/2017 17:30 US MBA Mortgage Applications 6-Jan -- 0.10%
01/11/2017 20:30 UK NIESR GDP Estimate Dec 0.50% 0.40%
01/12/2017 15:30 EC Industrial Production WDA YoY Nov 1.40% 0.60%
01/12/2017 17:30 IN CPI YoY Dec 3.50% 3.63%
01/12/2017 17:30 IN Industrial Production YoY Nov -2.20% -1.90%
01/12/2017 19:00 US Initial Jobless Claims 7-Jan -- 235k
01/12/2017 19:00 US Continuing Claims 31-Dec -- 2112k
01/13/2017 19:00 US Retail Sales Advance MoM Dec 0.50% 0.10%
01/13/2017 20:30 US U. of Mich. Sentiment Jan P 98.6 98.2
01/13/2017 CH Trade Balance Dec $47.55b $44.23b
01/13 - 01/16 IN Trade Balance Dec -- -$13008.9m
01/13 - 01/16 IN Exports YoY Dec -- 2.30%
01/13 - 01/16 IN Imports YoY Dec -- 10.40%

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]