October 2017
Forex Newsletter Dear Readers, It was an action-packed month of high voltage volatility that gripped the markets as the rupee fell to six month lows and Nifty went haywire after testing record highs and then tanked sharply towards F&O expiry. The rupee saw a free fall over the last one week, closing around 2.5 per cent lower in September. There were concerns of government overshooting its fiscal deficit target for the year and the global ‘risk off’ sentiment weighed on the rupee. Going forward, markets would be looking at the upcoming RBI monetary policy, rising oil prices, Fed rate indications, spike in the import bill and the geopolitical situation, some of which may not augur well for the rupee. Net net it is going to be an exciting month for traders, particularly on the rupee front. Volatility is back, let us capitalize and trade this volatility.
US market updates
Global currencies
It was a month that was largely dominated by geopolitical tensions and central banks actions. After months of rally, the EURUSD pair took a breather. Sterling surged sharply boosted by hawkish BoE announcement. A November rate hike by BoE is now a possibility amid accelerating inflation. The BoE’s monetary policy committee voted 7-to-2 to leave interest rates
USDINRAugust OctoberSeasonality Seasonality Chart USDINR Chart 2 9.00
2.22%
8.00 1.5 7.00 1 6.00 % change
The month of September saw the US dollar falling to its weakest levels since 2015 and then taking a U turn to close the month with marginal gains. In a widely expected move, the US central bank kept the policy rates unchanged, but announced that the authority would begin to reduce from October its approximately $4.2 trillion in holdings of US Treasury bonds and mortgage-backed securities that it had accumulated to ease the 2008 credit crisis. Fed signalled that it still expects one more increase by the end of the year despite a recent bout of low inflation. The US consumer price inflation rose more than expected in August. The strong data was seen as increasing the chances of an additional rate hike by the Federal Reserve this year.
Jayant Manglik President - Retail Distribution
0.85%
0.5 5.00
0.60%
0 4.00
0.09%
3.00 -0.5 2.00 -1 1.00
-1.5 0.00
-1.10%
-1.27%
-1.00 -2 Aug, Oct, 11
Aug, 12 Oct, 12
Aug, 13 Oct, 13
Aug, 14 Oct, 14
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at their current record low of 0.25% following its policy meeting. Mario Draghi said that the ECB will decide on the “calibration” of its policy beyond 2017 later this year. He added that the bulk of the decisions about the asset purchase program will be taken in October. The ECB has raised its growth forecast for 2017 and 2018, but cut its inflation forecast for 2018 and 2019. The Bank of Japan held policy steady as expected after the conclusion of its two-day meeting with an asset buying program focused on the yield curve at Y80 trillion annually. The board voted 8 to 1 to keep the yield curve policy in place and the bank raised its estimates of public investment while the vote for asset buying was unanimous. The yen fell over two per cent against the dollar in September.
Indian market updates
The Indian rupee fell by around 2.2 Per cent in September to over six-month lows against the dollar. The fall was triggered by Federal Reserve Chair Janet Yellen's comments which raised expectations of another rate increase. Further aggravating the fall in Indian rupee have been the rising concerns about India's economy and the government's fiscal discipline that sparked
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October 2017
strong selling by foreign investors in Indian equities and sent the rupee tumbling. The Indian government may increase fiscal spending which will lead to an increase in borrowings and a higher fiscal spending can be a drag on the rupee as it can widen fiscal deficit. Geopolitical tensions between North Korea and US also weighed on the local unit. Rising oil prices have also added to the jitters. April - August fiscal deficit reached 96.1 Per cent of FY-18 target. The deficit was 76.4 per cent of the full-year target during the same period a year ago. India’s consumer price inflation rose more than expected to a five-month high in August, fuelled by strong gains in prices of food items, dampening chances of a rate cut by the Reserve Bank of India (RBI) in a policy review amid weak economic growth. India’s consumer price index (CPI) rose 3.36 per cent in August from a year earlier. Trade deficit widened to $11.64 billion from $11.45 billion in July. Current account deficit also widened to $14.3 billion, or 2.4 per cent of gross domestic product, in April-June from $3.4 billion or 0.6 per cent of GDP in January-March.
USDINR Derivative Stats
2.62 per cent, as compared to its previous expiry of 64.01. The cost of carry for the October series was at 0.2625 which is higher as compared to 0.2050 in the previous expiry. The rollover has been around 53.97 per cent as against 60.72 per cent in the previous expiry. On the options front, call writing has been seen in the 66 strike along with a build-up in open interest, whereas Put writing and build up in open interest has been seen in 65 strike.
Technical outlook - USDINR
After several weeks of downtrend, the USDINR pair reversed course and closed the month with gains of over two per cent. This reversal has caught much attention as it was sharp and swift and managed to lead the pair trading above its 100 day EMA. Technically, USDINR seems to be getting strong support from 65.00 levels and bulls will be waiting to enter in case there is a retracement up to those levels. On the upside, there is notable resistance around the 66.40 levels that will restrict further upside. Overall trend indicates bullish optimism and the strategy will be to enter longs around the 65.00 - 65.10 mark, keeping stop loss below 64.50 for upside targets of 66.30 mark.
The USDINR pair closed the September series at 65.69 up by
Upcoming major events INR Premiums
Date
Time
Country
Release
04-Oct
2:30 PM
India
RBI Monetary Policy
05-Oct
5:00 PM
Euro
ECB Monetary Policy Meeting
06-Oct
6:00 PM
US
Non Farm Payroll
10-Oct
4:30 PM
India
Trade Deficit
12-Oct
05:00 PM
India
Manufacturing Output
12-Oct
05:00 PM
India
16-Oct
05:00 PM
India
Futures
Forwards
1M
0.22
0.215
6M
1.27
1.315
12 M
2.46
2.675
10 Year G Sec (Oct Futures) 679GS2027
100.99
Industrial Output
OI(million)
531
WPI Inflation
Volumes (million)
1019
Currency Volumes & Open Interest at exchanges* Futures Volumes (Million dollar)
OI (Million dollar)
Options Volumes (Million dollar)
OI (Million dollar)
NSE
5,547
3,502
4,241
5,311
9,788
8,813
Total Volumes Total OI (Million dollar) (Million dollar)
BSE
3,912
900
1,540
478
5,452
1,378
MSEI
82
231
59
77
141
308
Total
9,541
4,633
5,840
5,866
15,381
10,499
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