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Forex
Forex

Forex (522)

Thursday, 26 March 2015 12:08

MPC Statement Highlights

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The last month MPC Statements important points are:

  • Committee has targeted 2% Inflation rate, 7% unemployment rate
  • Committee continues Asset Purchase Facility at $375 billion Pound
  • Unemployment rate in December read 7.3% lower than prior 7.6% in November, which is above 7% target level.
  • CPI in December read 2.1% lower than prior 2.2% in November, which is above 2% target level.
  • CAD has been doubled over past 2 years and could have been around 3.5% of GDP in Q3.
  • Committee decided not to lower interest rate below 0.5% in order to reduce its stock of assets purchase till unemployment rate goes below 7%.

Comments:

  • Inflation rate is near to target level at 2% and Unemployment rate is above target level at 7%.
  • As BOE has already decided not to go for tapering till unemployment rate is below 7%, so we expect stand still in todays meeting.
  • We expect that MPC may start reducing asset purchase by mid of 2014, which will help GBP in long run.

 

Thursday, 26 March 2015 11:53

Expectation in FOMC Meeting Minutes

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Last FOMC Meeting Minutes was released (on) 20th Nov. Minutes of FOMC Meeting held on 17-18Dec will be released late by today evening. Lets read the important point discussed in the last FOMC meeting Minutes.

  • Unemployment rate on Oct was 7.2%, prior 7.3% in Sept, which was within projection range of 7.1%-7.3%.
  • Unemployment was expected to decline as expansion in economic activity was expected, which is slow for projected period.
  • However, the committee will keep Federal fund target between 0-0.25percent, till unemployment rate is above 6.5% and Inflation below 2%.
  • CPI declined to 0.7% on Oct, prior was 1.1% Sept, which was below the target level.
  • Inflation rate of 2% is targeted by FOMC.
  • As per FOMC Member, Inflation rate is below its expected level. However, they believe that in long term Inflation rate will come back at expected level.

December 18th Statement review:

  • Committee decided to reduce Asset purchase program by $10billion in the beginning of January by reducing pace of mortgage backed securities to $35 billion per month from $40 billion and Longer Term Treasury to $40 billion per month from $45 billion.

What to look for in FOMC Meeting Minutes:

  • What is going to be pace of tapering? : If it is going to be higher than expected than it will support USD in long run.
  • Any change in long term inflation expectation?: Looking at inflation number, which is lower, we feel that it will remain low in short to medium term and long term expectations will remain anchored.
 
Thursday, 26 March 2015 11:51

Why Marketer Should Watch ECB Press Conference?

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The last ECB Press conference was on 5th Dec 2013.Following are the important point(s) in the ECB Press conference:

  • No change in Interest rate, keep same 0.25%
  • Euro area Inflation was 0.9%, from 0.75%in October and 2015 estimated 1.5% Inflation rate .just below target of 2%.
  • ECB, ready for Interest rate cut for price stability
  • Euro area GDP raise by 0.3% on 2nd Quarter, were 0.3% expected on 3rd quarter.
  • Euro economic condition may affect by higher commodity price, weaker than expected domestic demand and export growth.

Draghi said that,17-nation Eurozone is recovering from recession, no sign of Deflation and some countries are showing signs of economic recovery, so no need of policy change. Interview with German daily Der Spigel on Dec 2013.

Euro area economic recovery is fragile, inflation has gone low up to 0.7%, and however it is expected to remain subdued for prolonged period. Over medium and longer term inflation expectation are in line with ECB estimates. Today reading 0.8% inflation is confirming this outlook of ECB. This may lead to standstill for EBC tomorrow.

Policy stand will remain accommodative for prolonged period, interest rates will remain low till inflation expectations remain low. Non-standard measures will remain in place for better transmission of policy. This may help liquidity for longer period of time.

 
Thursday, 26 March 2015 11:45

Effect of PM Dr Manmohan Singh Speech on Rupee

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Brief of Mr. Singh speech:

  • India estimate GDP has grown faster than ever before.
  • He admitted that Govt failed to control Inflation as wished earlier.
  • For Govt, India-U.S relation is a priority.
  • He is confident that next PM will be from UPA coalition.
  • Govt will continue to push the cause of reforms.
  • Income of people increase faster than Inflation
  • India growth momentum will revive.

Traders found no important cues in speech. We expect Traders may watch Inflation data on 13th and 14th Jan, as RBI may take action ahead for Interest rate. Today Rupee will be in the range of 62.05 -62.70.As India Dec Fiscal deficit declined, will maintain fiscal 2014 target to fall at 4.8% of GDP, earlier said by our FM P. Chidambaram. Rupee opened at 62.3550 against Thursday closing of 62.2675. Yesterday India Manufacturing PMI reading was lower to 50.75 than last month reading of 51.3, which failed to support Rupee in short term. However, Rupee gains against Dollar at 62.30 on account of selling pressure. During PMs Speech at 11 am rupee traded at 62.4250. Rupee got weak against Dollar and made a high of 62.46.

 

Thursday, 26 March 2015 11:44

Brief on UK PMI Data, January 2014

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On 2nd January we have Manufacturing PMI, expected 58.3 same as previous month. Since, June 2013 Manufacturing PMI was above 50, which indicate industry expansion. On last month the PMI was 58.4 highest since March 2011.

On 3rd January we have Construction PMI, expected 62.3 slight below previous month 62.6.On last month the PMI was 62.6 highest since September 2007. PMI was noted above 50 from Aug 2013, which indicate expansion.

On 6th January we have Service PMI; last month was noted 60, which was below expectation at 62.1. However, PMI was above 50 from January 2013.

In previous month PMI data were supported by improvement in Infrastructure and Residential building sector, increase in number of Job creation and new orders. The recovery in Industrial activity has given boost to purchasing activity and in previous month sector faced some shortage in raw material. The improvement in new business and performance supported Services PMI last month.

 

Thursday, 26 March 2015 11:42

Rupee Moment on 1st Week of New Year

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Let's understand Rupee moment on 1st week of January 2014. Below table shows INR High and Low on 1st week of January every year, for last 5 years.

Year

1st week High

1st week low

Difference

2013

55.33

54.26

1.07

2012

53.34

52.61

0.73

2011

45.47

44.64

0.83

2010

46.66

45.56

1.1

2009

49.13

48.16

0.97

Average movement in first week is approximately 94 paisa. In 2010 we saw maximum volatility of past 5 years. INR appreciated 1.1 rupee. In first week of year most of volatility is function of low liquidity for last some days. This leads to market adjustments which make sure that High low have 2% average volatility in case of INR.

This time we have seen RBI actions and inflation driving market for last few months. In Jan first week, many data are lined up, which includes PMIs, FOMC meeting minutes etc. We may expect INR to remain in range of 61.50 to 62.66, in case we see high volatility. Market may discount inflation data post PMI report on India.

 

Date: 30th Dec 2013

Today RBI released Financial Stability Report of December 2013, with a view on Fed tapering, improving economic conditions and Bond Purchase Program from 2014.

Highlights of RBI Governor Rajan speech after FSR Release:

  • Economic conditions are improving, but growth is still weak.
  • Fed tapering effect may be for short term in Forex market
  • Indian elections has increased uncertainty in the market
  • Growth is dependent on Global uncertainty, Current Account deficit and Inflation rate.

 

However, RBI is concerned about the banking sector wherein losses have occurred in Banks after the FSR Report published in June 2013. RBI may focus on Inflation data, as no change in Interest rate this month has surprised the market.The delay in tapering may help RBI to adjust gap in Current account deficit. We have next Policy meeting on 28th January 2014 and focus may remain on Inflation rate.

We have CPI data on 13th and WPI data on 14th January, which is important for RBI and Market. However, the effects of Fed tapering on Rupee may remain as the focal point.

Rupee was seen range bound last week; movement of 35-39 paisa was seen. We may see Rupee weak against Dollar on account of Fed tapering. But, overall we expect Rupee would be in the range of 60.90 - 62.70 till 13 Jan 2014(Inflation Data). RBI may take necessary steps if Rupee crosses 63 mark.

 

Wednesday, 25 March 2015 16:17

Biggest fall of Yen against Dollar

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Today Yen declined against dollar and crossed 103.21 past highest low on 17th May and made a new low of 103.92 at 10.59 am in Indian market hour. Yen is depreciating since past 2 months from Octobers high of 97.42. Japanese currency declined due to Feds tapering and continuous monetary easing by Bank of Japan. However, we can also see the divergence in yields between Treasuries and Japanese bonds and approached the largest level since April 2011.

There is a wide impact of Yens weakness against Euro, as Euro reached 5 year high against yen, before ECBs vice president Vitor Constancios speech in Paris today. If we study past trends, Yen has declined against Euro during mid-may and also wavered further. At the end of September, it traded at the levels of 132-133 Yen against the Euro.

As per Bloomberg News, the Fed may begin to reduce its $85 billion monthly bond buying program on 17-18 Decembers FOMC meet. As we know the Bank of Japan has target of 2% Interest rate and to achieve the price stability the Bank of Japan may continue its monetary easing.

 

However, the market should closely look up at Fed Policy meeting held next week for tapering issue and Bank of Japans Policy meeting held at the same time.

Wednesday, 25 March 2015 16:07

Rupee weak after Fed tapering decision

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Today Rupee opened at 62.25, with gap of 15 paisa, recorded last trade price on Wednesday at 61.10. Today Rupee was weak against Dollar in morning session, on account of Fed tapering news.

Source: Bloomberg

Above chart describe USDINR daily moment on 19th Dec 2013.As we can see from chart, Rupee open above Pivot point and cross resistance before noon session.

The U.S Central Bank said, reduce in monthly asset purchases by $10 billion and mortgage and Treasury bonds would be reduce by $5 billion each, starting in January. The Interest rate will remain in lower side even longer them promised. The improving economy condition and Job market are major reason for tapering by Fed.Indian Forex market had discounted tapering news last week so we did not see high volatility post news. Today Rupee later depreciates till 62.47 and cross today opening price at 62.24. However, Rupee gets support from Government due to no change in Interest rate. We expect Rupee may be in the range of 63.50 -64 at the end of Dec month.

 

Wednesday, 25 March 2015 16:06

RBI holds on Interest rate, Rupee short term gain

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Today RBI announces Interest rate decision, unchanged in Repo rate and CRR. Rupee was depreciated by 10 paisa and made the day high at 61.97 before data release. Rupee appreciated by 10 paisa and reach 61.7750, after data release.

RBI view on decision,they are wakeful and high Inflation poses growth, financial stability risks. Its aim to stabilize inflation expectation and will act if inflation main factor Food and Fuel doesnt fall or expected Food Inflation may not soften. They are waiting for Tapering decision, risky data and the Reserve Bank may be perceived to be soft on inflation.

RBI Gov Rajan Comment after Interest rate decision that,Current Inflation is high, think December price will be in Downward Direction. RBI doing difficult balancing act and trying to calibrate policy to curb Inflation. India growth is below its potential level and Supply is under control. Government is targeting to achieve Fiscal deficit target. He is comfortable at India CAD current level and aim for CAD spread without distortions. RBI waiting for next inflation data, RBI is not soft on Inflation.

RBI Gov Rajan earlier had increase 50 basis points after taking charge from September. Currently, RBI is waiting for more important data like Vegetable price may stable in next Inflation data. Our market has already discounted by the Tapering event and reacted on this event. However, Rupee may get weak against Dollar if Tapering happen, but may not react badly.

 

People should watch Fed Meeting decision today and forecast there investment on the basis on Rupee reaction.