Last week, we warned about the underlying weakness in the US dollar and the Indian rupee. Our forecast high of Rs 46.49 for the dollar was not violated during the week.
Concerns about surging international prices of crude and domestic inflationary worries, prompted dollar selling by state-led banks in support of the rupee.
In contrast to international markets, the dollar slipped substantially breaking key intra-week support of 46.24, violating it once and finally closing below it on Thursday.
The 6-month forward premiums were unable to get higher than 71 paise. Exporters, however, ought to be very concerned if premiums fall below 59 paise in the coming week. However, should 6-month forward premiums slip, we expect the premiums to settle at 46/48 paise next week.
While the rupee was asserting its strength this week, the dollar is likely to be supported well in the 45.75/85 region, which is the level we expect to see in the coming weeks.
Euro vs Indian Rupee
With EUR/INR being more sensitive to trends in the international forex market, it rallied sharply to Rs 57.03 on the back of surprising numbers in the Weekly Jobless Claims released in the United States during the week.
The pair is buffeted at the moment by cross drafts in the EUR/USD rates. The charts are portentous of a very bearish decline in prices due the presence of a 'head and shoulder' pattern, implying Euro weakness ahead.
EUR/INR has been unable to claw above Rs 57.24 set in July this year. With dealing range-bound, any weakness should target Rs 55.40 for the coming week.
Exporters would be well advised to hedge in the region of Rs 57.10- Rs 56.20 as prices are expected to dip to Rs 55.40 and lower in the coming weeks. Importers would be well advised to watch for price breaking above Rs 57.80 to hedge payables.
Below Rs 55.40 they could get aggressive and actually unlock their hedge, as any break below Rs 55.40, would imply targets of Rs 48.10/Rs 46.56 fulfilling the technical measurement for the 'head and shoulders' pattern.
British Pound vs Indian Rupee
Intra-week rallies on GBP/INR were successfully repulsed at Rs 85.40 during the week. Prices slipped quickly thereafter on cues from the international markets.
The key event for the week was the break of support at Rs 84.32. GBP/INR is now firmly under the bears' control. We expect to see prices near Rs 83.22 by early next week.
Relative weakness of sterling versus the dollar will drive GBP/INR lower into the Rs 81.50 area, where substantial sterling demand and support is expected to emerge. Importers ought to consider hedging between Rs 82.10 and Rs 81.50 levels.
For exporters already hedged, they could look to decouple hedges at Rs 81.50/Rs 82.10. The trend, however, is expected to be weak for the next few trading sessions.
Nymex gold
In our last report, we had called for selling into any rallies. Gold futures on the Nymex were successfully repulsed in the 400 region, after posting a high of $401.50. With the daily closing prices and the 30-day average being held under the 200-day average, the bearish overhang persists on the futures contract.
We expect Nymex Gold futures to skid to $387 in the coming week, where temporary support is expected. Failure of the bulls to support prices at $387 during next Friday's New York dealing will bring additional supply and induce liquidation from funds resulting in prices falling to $365/$355 levels.
This level incidentally is a confluence of strong, multi-month trend line support as well as targets for Elliot measurement techniques.
Any weekly break of Nymex Gold futures below $387 should be seen as an opportunity to sell, as bull liquidation is expected to be heavy.
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