: Morning Market Starter - July 08, 2013

[Rajesh Desai]

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Date: Monday, July 8, 2013
Subject: Morning Market Starter - July 08, 2013
To: stock...@gmail.com

Theme of the Day Broad based caution prevails in the markets post the release of better than expected US non farm payrolls print on Friday, which strengthened speculation of an early tapering of asset purchases by the Fed. High degree of volatility expected in asset moves in the global financial markets today. View Today DXY: The DXY index is trading strong at 84.50 levels after gaining 1.46% in the previous trading session post the sharply stronger than expected US NFP release on Friday. The non-farm payrolls rose 195k in June-2013 versus expectation of 165k increase while the unemployment rate remained unchanged at 7.6%. The 10-year US treasury yields spiked 23 bps as the improving labour market conditions fuelled speculation of an early tapering of the QE program, possibly starting from the September meeting of the Fed. The investors now eagerly await the FOMC minutes due on Wednesday. Technically, intraday trend for the DXY is bullish with support and resistance at 83.75 and 86.00 respectively. EUR/USD: The Euro is trading weak at 1.2824 levels after losing 0.65% in the previous trading session amidst a broadly strong greenback. The currency has also come under pressure on political tensions prevailing in Portugal and with S&P downgrading the rating outlook for the economy to negative from stable previously. The German industrial orders data on Friday also came out weak at -1.3% MoM as against 1.2% MoM expectation. The comments from ECB official Coeure that if short-terms risks materialise, the recovery would be pushed back by a few quarters as banking sector deleveraging was not yet complete also weighed on the currency. The intraday trend for the Euro is bearish, with support and resistance at 1.2750 and 1.2850 respectively. GBP/USD: The British Pound is trading sharply weak at 1.4876 levels after losing 1.21% in the previous trading session tracking the losses in the Euro. The BoE's signal of an accommodative policy stance by the New Governor in the policy meeting last week has also weighed on the currency. The differential policy stance of the Central Bank vis-à-vis the US Fed is expected to further aggravate the losses in GBP/USD. The intra day trend for the GBP/USD cross is bearish, with support and resistance at 1.4825 and 1.5050 respectively. USD/JPY: The Japanese Yen continued its weakening trend against the greenback and is currently trading at around 101.28. The weakness is mostly on account of the strength in the Dollar after a stronger than expected NFP print last week, which again rekindled expectations of a Fed reversal sometime this year. However, cautiousness continued on account of China and other Asians thereby capping any significant losses in the Yen. Technically, the intra day trend for USD/JPY cross is bullish with support at 100.35 and resistance at 102.00. USD/CHF: USD/CHF is currently trading at 0.9658 levels, higher than yesterday's close of 0.9640 on the back of significant strengthening the US Dollar amidst rising speculation over an early tapering of asset purchases by the Fed. Meanwhile, the EUR/CHF cross is trading at 1.2386, higher than prior close of 1.2366 as some respite to debt concerns in the Eurozone weighed on the safe haven demand for the Franc. Markets would closely watch Switzerland's unemployment rate and industrial production data de later in the day for further cues. Technically, USD/CHF is expected to trade bullish with support at 0.9600 and resistance at 0.9700. AUD/USD: The Australian Dollar is trading lower around 0.9054 levels, the lowest level since September 2010 as against previous close of 0.9067 amidst losses in domestic stocks and decline in metal prices. Continued concerns over the liquidity squeeze in China and increasing expectations of a rate cut By the RBA amidst growth concerns in Australia further weighed on the Aussie. Meanwhile, the currency had depreciated by around 0.9% on Friday on the back of significant strength in the Dollar. Technically, we expect AUD/USD to bearish with support at 0.9000 and resistance at 0.9150. USD/CAD: The Canadian Dollar has recovered somewhat from Friday's losses and is currently trading marginally strong at 1.0577 compared to the previous close of 1.0582. Though weak domestic labour market data coupled with lower than expected print of Ivey manufacturing PMI added to growth concerns in Canada and weighed on the Loonie, uptick in crude oil prices has provided some support. Meanwhile, positive labour market data from US, Canada's largest trade partner has also aided optimism over the economy's export outlook and provided some support. Technically, we expect USD/CAD to trade bullish with support at 1.0500 and resistance at 1.0657. Sensex: Indian stocks markets opened in the red tracking broad based losses in other Asian peers amidst liquidity concerns in China and increasing speculation over an early tapering of QE by the Fed. On the domestic front, caution is likely to prevail ahead of May IIP and June CPI data release due later in the week and the announcement of the Apr-Jun earning results by corporates beginning this Friday. Technically, Sensex is expected to trade ranged between 19200-19650. USD/INR: The Indian Rupee opened weaker at 60.95 compared to yesterday's close of 60.23 on the back of broad based strength in the US Dollar. The Rupee is likely to remain under pressure amidst subdued global risk sentiment and negative cues from other Asian peers. Dollar demand by oil importers, which has remained strong over the last couple of sessions, could further weigh on the domestic currency. Markets would closely watch any cues on RBI intervention, which would be key in limiting the downside in the Rupee. Intraday movements in domestic stocks would provide further direction to the currency. In the absence of intervention or announcement of any major measures to stem INR , scope of INR appreciation is limited. Technically drastic depreciation of INR also limited and correction is due. 61.40-50 level is expected to be the resistance in this move. G-Sec: The Indian Government bonds are trading lower tracking sharp overnight losses in US Treasuries and uptick in global crude oil prices. Though subdued risk sentiment coupled with improved liquidity in the domestic banking sector are likely to provide some support, the upside is expected to remain capped amidst persistent weakness in the Rupee, which weighed on expectations of a rate cut by the RBI in the July meeting. Meanwhile, amidst heightened volatility in the global financial markets, the FIMMDA has removed the intraday trading band in Indian bonds. The old 10-year bond yield, currently at 7.72% versus prior close of 7.64% while the new 10-year benchmark, currently at 7.57% versus prior close of 7.50%. Oil: Crude oil prices are trading higher amidst concerns of supply disruption due to political turmoil in Egypt. Better than expected US NFP data released on Friday aided oil demand outlook and further supported the prices. However the upside was capped amidst strength in the Dollar. The front-month WTI future is currently trading at USD 103.39/bbl compared to prior close of USD 103.22/bbl while Brent is trading at USD 107.9/bbl, compared to prior close of USD 107.7/bbl. Technically, Brent is expected to trade ranged between USD 107.0 -108.5/bbl. Gold: Gold prices are trading lower after the US jobs data turned out to be better than predicted. A stronger Dollar also weighed on the metal. Meanwhile markets await Bernanke's speech this week. Spot gold is currently trading at USD 1218.8/oz lower than prior close of USD 1223.1/oz. Technically gold is expected to trade ranged between USD 1195-1250/oz. Please find attached herewith a file containing the detailed analysis. Regards, ICICI Bank : Treasury Research Contact: Kamalika Das: (+91-22) 2653-6280 Kanika Pasricha: (+91-22) 2653-1414 (extn: 2260) Rupali Sarkar: (+91-22) 2653-1414 (extn: 2023)

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CA. Rajesh Desai