HSL PCG Currency Insight-Weekly

21 January, 2017
 WEEKLY MOVEMENT MARKET WRAP UP
Rupee Weakens For Six Weeks In Row; But Pace Got Slower On Uncertainty

Currency It was a lackluster week for the rupee as it has been trading in narrow range
68.27 to 67.90 and settles the week at 67.18 from previous weeks 68.16.
Currency Prev. %
The foreign fund turns net buyer in the domestic equity market after a month
Last Chg. times, however remains seller in debt market.
(Spot) Close Chg.
Asian EM currencies gain after Fed Chair Yellen says she favours gradually
DXY Index 100.74 101.18 -0.4400 -0.4% raising rates and the central bank wasnt behind the curve in containing
EURUSD 1.0703 1.0643 0.0060 0.6% inflation.
Indias benchmark bonds yield gains tracking U.S. Treasuries and also as
GBPUSD 1.2375 1.2182 0.0193 1.6% investors turn cautious ahead of federal budget due Feb. 1 and monetary
USDJPY 114.62 114.49 0.1300 0.1% policy on Feb. 8. Yield on govt. bond due September 2026 rises 5bps to
6.465% in week to Jan. 20, biggest weekly jump since Dec. 16 week. U.S.
USDINR 68.1775 68.1563 0.0212 0.0%
10-year Treasury yields up 11bps this week, set for biggest advance in five
EURINR 72.5030 72.6130 -0.1100 -0.2% weeks.
It was the first time in seven weeks, the spot USDINR made lower low and
GBPINR 83.6368 83.2338 0.4030 0.5%
high from previous candle. We believe the pair may consolidate in the range
JPYINR 59.11 59.48 -0.3700 -0.6% of 68.40 to 67.90 in near term before breakout.
DGCX USDINR 68.1477 68.2734 -0.1256 -0.2%
Dollar Index register 2nd weekly loss After Trump put America First

The dollar index, the basket of six currencies, fell for the second consecutive
RBI Reference Rate weekly as President Donald Trumps inauguration speech focused on
domestic growth and job. Investors shifted to gold as haven assets in
Prev. % reaction to the new commander in chiefs promise to upend the political
Currency Last Chg.
Close Chg. establishment. The index briefly fell to session lows during Trump's remarks
USDINR 68.0883 68.2310 -0.1427 -0.2%
on Friday in which he pledged to put "America first," reigniting some worries
of protectionist policies. But the decline was modest as Trump did not touch
EURINR 72.7319 72.4750 0.2569 0.4% on specific economic or trade policies.
GBPINR 84.1231 82.9757 1.1474 1.4%
The dollar index fell 0.4% during the week to ends at 100.74. It has risen
about 3.5% since Trump's Nov. 8 election victory, but has shed more than
JPYINR 59.3800 59.4000 -0.0200 0.0% 1% so far in January.
The pound declined against the dollar after a report showed U.K. retail sales
fell at the fastest pace in almost five years in December. Cable has pared its
GOI 10 Yr. Bond Yield weekly advance to 1.6% to settle at 1.2375 after rallying more than 3% on
Tuesday, the most since 1993.
Prev. % Technically, dollar index is having resistance around 103.82 and support at
Instrument Last Chg. 99.43.
Close Chg.

697GS2026 6.4650 6.4170 0.0480 0.7%

PRIVATE CLIENT GROUP [PCG]

US Economic Releases
The central point in the week ahead will be the first print on US 4Q GDP. The reading will give cues for underlying economic health as well as expectations
regarding the trajectory of monetary policy. The tone of the report will influence the tenor and guidance of the FOMC's post-meeting statement, released on
Feb. 1. Recent public remarks show a general consensus to continue normalizing interest rates, albeit at a cautious pace. The GDP data will validate this
approach.
US Existing home sales may have declined in December, pressured by inadequate inventory at the end of the prior month. It might still be too early for re-sales
to be impacted by the post-election jump in mortgage rates. Higher rates will most likely push home sales down in the first half of 2017.
The first time claims for unemployment benefits fell to 234k in the week ended Jan. 14, which is only 1k shy of the lowest level in over 40 years. Since this
level coincided with the survey week for the January employment report, there is a chance that job creation could exceed the recent pace.
Home sales to be affected by higher mortgage rates as November's jump in new home sales was not a sign that potential homeowners are insensitive to rising
mortgage rates. Instead, the spike in rates likely brought demand forward at the expense of future sales, as potential buyers rushed to lock in rates before they
climb further.
US GDP growth in the final quarter of the year may reflect many familiar trends. Consumer spending, driven by durable goods strength, will remain the major
contributor, while residential and inventory investment will support growth. Temporary factors, such as soybean exports, boosted growth in 3Q; trade data
suggest that nearly a full percentage point of contribution from the sector will fully reverse in 4Q. Market expects GDP to decelerate to 2.5% in 4Q from 3.5%
in 3Q.

Asia Economic Releases

In China, industrial profits for December will be the main data point to watch. In Japan, trade data for December and the all industry activity index for
November are also due for release.
Japan's headline consumer price inflation may have slowed down to 0.3% year on year in December from 0.5% in November, as per the estimates. The core
CPI, which excludes fresh food, likely fell 0.4%, the same pace of decline as in November. A weaker yen and higher oil prices are positive for the inflation
outlook. The core CPI is likely to turn positive in early 2017.

Euro Zone Economic Releases

Euro-area shoppers ended 2016 on a cheery note. The quarterly average of consumer confidence rose to -6.4 in 4Q from -8.2 in 3Q, suggesting an acceleration
of GDP growth in the final period of the year to 0.4% quarter over quarter from 0.3%. However, the recent sharp rise in fuel prices may have left consumers
feeling less upbeat after the holiday season.
EZ PMIs for the euro area had a stellar ending to 2016, reflecting the readings for the region's two largest economies. The headline numbers matter, but the
European Central Bank will probably scour the details of the January survey for signs that the inflation outlook is improving. Another rise of the output-price
component in January, from a fresh five-year high in December, would provide some evidence of that.
U.K. GDP growth is likely to come in at a preliminary 0.5% for 4Q, a slight slowdown but more evidence that the economy is holding up better than expected
since the vote for Brexit. The Supreme Court's ruling on who can trigger Article 50 of the EU's Lisbon Treaty also bears watching. A bounty of key surveys is
due for the euro area. Consumer confidence, the PMIs and Germany's Ifo reading should confirm the region held its growth momentum into January.

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 68.2275 68.2800 -0.08% 1570346 1866779 -15.9% 840141 712363 17.9%
NSE EURINR Future Jan17 72.5725 72.7500 -0.24% 32295 37535 -14.0% 31514 42215 -25.3%
NSE GBPINR Future Jan17 83.8125 83.4925 0.38% 23626 26244 -10.0% 76673 56494 35.7%
NSE JPYINR Future Jan17 59.2200 59.6175 -0.67% 17817 20917 -14.8% 28565 35108 -18.6%

PRIVATE CLIENT GROUP [PCG]

 TECHNICAL OUTLOOK SPOT USDINR
USDINR Jan. Future CMP 68.23
DAILY CHART
Weekly
Currency
Pivot

Resistance 2 68.62
Resistance 1 68.43
Pivot 68.19
Support 1 67.99
Support 2 67.76

Consolidation Continues
For last 3 consecutive weeks,
USDIR Jan fut. pair has been
trading in a narrow range of
67.90 to 68.51.
Close above 68.51 would turn in
to a fresh breakout, while close
below 67.90 would turn in to
breakdown.
Dollar Index (DXY) has been
weakening against all major
currencies on the short term
charts. This can put USDINR
under selling pressure.
Oscillator like RSI has also been
showing sign of weakness in the
pair.
Below 67.90, far support for the
pair is seen at 67.42, while
Resistance above 68.51 comes at
68.94.

PRIVATE CLIENT GROUP [PCG]

 TECHNICAL OUTLOOK SPOT EURINR
EURINR Jan. Future CMP 72.57
DAILY CHART
Weekly
Currency
Pivot

Resistance 2 73.33
Resistance 1 72.95
Pivot 72.59
Support 1 72.21
Support 2 71.85

Maintain Longs in Jan Fut., Tgt.

73.45, SL 72.00
We are of the view that Euro has
bottomed out against the US
Dollar. EURUSD has reversed from
the long term trend line support
on the monthly charts.
Euro carries 57.6% weight in
dollar index and we expect Dollar
index to extend its fall from here.
So, all these developments can
lead to appreciation of Euro
against all major currency like
INR, GBP, JPY including dollar.
We have been bullish on EURO for
last couple of weeks. However not
only for the short term but also for
medium to long term we are
bullish on EURINR for the target of
77.
For trading advise to hold long in
EURINR for 73.45 target, with SL
of 72 .

PRIVATE CLIENT GROUP [PCG]

 TECHNICAL OUTLOOK SPOT GBPINR
GBPINR Jan. Future CMP 83.81
DAILY CHART
Weekly
Currency
Pivot

Resistance 2 85.73
Resistance 1 84.77
Pivot 83.36
Support 1 82.40
Support 2 80.98

Buy GBPINR Jan Fut. above 84.30,

SL 83, Tgt. 86.8
Fall in Dollar index could also
trigger strength in the GBP against
currency like INR.
Looking at the long term weekly
charts, 82 seems to be very strong
support in GBPINR pair.
Short term Resistance for the pair
is seen at 84.30, while far
resistance is seen at 86.87
There is a good chances of GBP
getting appreciated against dollar
from current levels and impact of
the same would be witnessed in
GBPINR, which would also
appreciate.
We advise cutting shorts in GBPINR
and initiate longs above 84.30 in
Jan fut for the target of 86.80,
keeping SL at 83.

PRIVATE CLIENT GROUP [PCG]

 TECHNICAL OUTLOOK SPOT JPYINR
JPYINR Jan. Future CMP : 59.22

Currency
Weekly DAILY CHART
Pivot

Resistance 2 60.68
Resistance 1 59.95
Pivot 59.56
Support 1 58.83
Support 2 58.43

Buy JPYINR Jan Fut. around

58.80, SL 58.50, Tgt. 60.20
In last 3 sessions, pair witnessed
profit booking from higher levels
of 60.30.
Pair started forming higher top
and higher bottom, since it hit a
low of 57.25 in Dec 2016.
If we adjoin the recent bottoms
on the daily chart, support
seems to be around 58.80
Recent Top made at 60.20 would
act a resistance.
RSI on the daily chart has exited
the overbought zone, which
could extend the fall towards
trend line support of 58.80.
However, overall setup gives us
the confidence to buy on dips
around 58.80, keeping SL at
58.50.

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 JAN. MONTH OPTION DISTRIBUTION

Data Interpretation:

The highest Open interest is seen on 69 call strike with open interest fell from 3.50 lakh to 3.00 lakh contracts suggesting
covering of position by hedgers. During the week, we have seen addition in 68.50 put strikes implies bearish tones.
The put call ratio remained unchanged from previous weeks 0.78, indicating uncertainty among traders.
Looking at the above distribution, the pair likely to consolidate in the range of 68.50 to 67.70 ahead of expiry.

PRIVATE CLIENT GROUP [PCG]

USDINR FUTURE OPEN INTEREST CHANGE

Data Interpretation:

USDINR January future settles lower after previous weeks gain. USDINR Jan. future fells 0.08% to end at 68.22.
Broadly, the pair consolidate in the range of 68.51 to 67.90. The aggregate open interest were at 23 lakh contracts from
previous week 25 lakh contracts while near month at 15.7 lakh contract from previous week 18.7 lakh. The decrease in
open interest was on back of expiry due on 27th January.
The fall in open interest and price during the week suggesting unwinding of the position amid near month expiry.
The pair would trade in the range of 68.50 to 67.70 in coming week.

PRIVATE CLIENT GROUP [PCG]

INDIA FOREX RESERVE
Indian Foreign Exchange Reserves (US$ Billions)
Wkly Chg. 13-Jan 6-Jan 30-Dec 23-Dec 16-Dec 9-Dec
Total Reserves 0.69 359.84 359.15 360.29 359.67 360.61 362.99
Foreign Currency Assets 0.69 337.51 336.82 336.58 335.97 336.9 339.26
Gold 0.00 18.58 18.58 19.98 19.98 19.98 19.98
Special Drawing Rights 0.00 1.44 1.44 1.43 1.43 1.43 1.44
Position in IMF 0.00 2.31 2.31 2.3 2.29 2.3 2.3

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 6 MONTHS 1 YEAR
CURRENCY PAIR CLOSE
(% CHG.) (% CHG.) (% CHG.) (% CHG.) (% CHG.) (% CHG.)
DOLLAR INDEX SPOT 100.74 (0.41) (0.43) (2.47) 2.47 3.64 1.66
Euro Spot 1.0703 0.37 0.56 3.03 (2.07) (2.83) (1.72)
British Pound Spot 1.2375 0.27 1.58 0.06 0.99 (6.31) (12.80)
Japanese Yen Spot 114.62 0.21 (0.11) 2.83 (9.31) (6.74) 2.02
Indian Rupee Spot 68.1775 (0.07) (0.03) (0.20) (2.01) (1.44) (0.31)
Brazilian Real Spot 3.1743 0.87 1.36 5.54 (1.02) 2.70 29.09
Australian Dollar Spot 0.7555 (0.08) 0.71 4.08 (0.94) 1.03 9.37
South Korean Won Spot 1169.14 0.72 0.50 2.07 (3.58) (2.42) 3.82
S. African Rand Spot 13.5986 (0.28) (0.61) 2.93 2.60 5.50 23.26
Canadian Dollar Spot 1.332 (0.02) (1.55) 0.36 (0.68) (1.97) 8.89
Swiss Franc Spot 1.0016 0.46 0.68 2.72 (0.89) (1.43) 0.27

MAJOR COMMODITIES
1 DAY 5 DAY 1 MONTH 3 MONTHS 6 MONTHS 1 YEAR
COMMODITY CLOSE
(% CHG.) (% CHG.) (% CHG.) (% CHG.) (% CHG.) (% CHG.)
GOLD 1210.32 0.45 1.08 6.89 (4.38) (8.03) 9.94
SILVER 17.0907 0.42 1.59 6.16 (2.54) (11.95) 20.76
CRUDE OIL 53.22 2.11 (1.15) (1.79) 2.07 7.62 47.55

MAJOR INDICES
1 DAY 5 DAY 1 MONTH 3 MONTHS 6 MONTHS 1 YEAR
INDEX CLOSE
(% CHG.) (% CHG.) (% CHG.) (% CHG.) (% CHG.) (% CHG.)
Nifty 50 8349.4 (1.02) (0.61) 4.55 (3.95) (2.25) 12.49
S&P BSE SENSEX INDEX 27034.5 (1.00) (0.75) 3.82 (3.71) (2.76) 10.64
DOW JONES INDUS. AVG 19827.3 0.48 (0.32) (0.53) 9.27 6.77 23.20
S&P 500 INDEX 2271.3 0.34 0.04 0.33 6.08 4.43 19.11
NASDAQ COMPOSITE INDEX 5555.3 0.28 0.14 1.70 5.67 8.92 21.00
FTSE 100 INDEX 7198.4 (0.14) (1.90) 1.84 2.54 6.95 22.01
CAC 40 INDEX 4850.7 0.20 (1.46) 0.23 6.94 10.72 11.85
DAX INDEX 11630.1 0.29 0.01 1.57 8.58 14.61 19.10
NIKKEI 225 19137.9 0.34 (0.77) (1.49) 11.37 15.10 12.85
HANG SENG INDEX 22885.9 (0.71) (0.22) 6.08 (2.09) 4.20 19.94
SHANGHAI SE COMPOSITE 3123.1 0.70 0.33 0.42 1.04 3.66 7.08

PRIVATE CLIENT GROUP [PCG]

 ECONOMIC EVENTS NEXT WEEK
Date Time Country Event Period Survey Prior
01/23/2017 20:30 EC Consumer Confidence Jan A -4.8 -5.1
01/24/2017 06:00 JN Nikkei Japan PMI Mfg Jan P -- 52.4
01/24/2017 14:30 EC Markit Eurozone Manufacturing PMI Jan P 54.8 54.9
01/24/2017 14:30 EC Markit Eurozone Services PMI Jan P 53.9 53.7
01/24/2017 14:30 EC Markit Eurozone Composite PMI Jan P 54.5 54.4
01/24/2017 20:15 US Markit US Manufacturing PMI Jan P 54.3 54.3
01/24/2017 20:30 US Existing Home Sales Dec 5.55m 5.61m
01/24/2017 20:30 US Richmond Fed Manufact. Index Jan -- 8
01/25/2017 05:20 JN Trade Balance Dec 270.0b 152.5b
01/25/2017 17:30 US MBA Mortgage Applications 20-Jan -- 0.80%
01/26/2017 15:00 UK GDP QoQ 4Q A 0.50% 0.60%
01/26/2017 15:00 UK GDP YoY 4Q A 2.10% 2.20%
01/26/2017 19:00 US Chicago Fed Nat Activity Index Dec -- -0.27
01/26/2017 19:00 US Initial Jobless Claims 21-Jan -- 234k
01/26/2017 19:00 US Continuing Claims 14-Jan -- 2046k
01/26/2017 20:15 US Markit US Services PMI Jan P -- 53.9
01/26/2017 20:15 US Markit US Composite PMI Jan P -- 54.1
01/26/2017 20:30 US New Home Sales Dec 586k 592k
01/26/2017 20:30 US Leading Index Dec 0.50% 0.00%
01/26/2017 21:30 US Kansas City Fed Manf. Activity Jan -- 11
01/27/2017 05:00 JN Natl CPI YoY Dec 0.20% 0.50%
01/27/2017 19:00 US GDP Annualized QoQ 4Q A 2.10% 3.50%
01/27/2017 19:00 US Personal Consumption 4Q A 2.50% 3.00%
01/27/2017 19:00 US GDP Price Index 4Q A 2.10% 1.40%
01/27/2017 19:00 US Core PCE QoQ 4Q A -- 1.70%
01/27/2017 19:00 US Durable Goods Orders Dec P 2.90% -4.50%
01/27/2017 20:30 US U. of Mich. Sentiment Jan F 98.1 98.1

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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conclusion from the information presented in this report.
Research entity has not been engaged in market making activity for the subject company. Research analyst has not served as an officer, director or employee of the subject company. We
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]