EURUSD Chart Review

v  The Euro had a second leg of rally from 1.2870 which led an advance to 1.4940, breaching the high of the first leg of recovery till 1.4282. The first leg started from 1.1874.

v  The marker had broken the critical trend line resistance of 1.4150-the trend which set the market under a 2 and half year bearish trend.            

v  Presently, the market is in a correction mode of the second leg and treading around 1.4200 levels- a 740 points decline from the high.

v  The EURUSD has closed below the 50 day’s EMA for the first time after 14^th Feb 2011 suggesting bearish set up. The 100 day’s EMA level is pegged at 1.4030 levels.  The 10 and 20 days EMA has seen a bearish crossover

v  The weekly relative strength index (14) is treading lower and quoting around 0.55 levels and holding the trend line support of 0.54. The daily RSI (14) is almost at the oversold area and treading around 0.38 levels.

v  As per Fibonacci relationship, the 1.4140 is the 38.2% retracement level of 1.2870-1.4940 move, suggesting it as a one of support. The 50% level is at 1.3900 levels.

In our view, the 1.4140 breakout may push prices towards the 1.4030 levels- 100 EMA. A close below 1.4030 may bring in fresh technical selling in the market which has potential to pull down rates towards the trend line support of 1.36. On the higher side, 1.4450 may cap any advance.

View on Indian FX market 10 May, 2011

The EURUSD has come back strongly from 1.4250 and currently quotes around 1.4320 in Asia. Concerns of public finances exist throughout the Asian session while bets are coming at lower levels for Euro. The ECB rate hike possible during July after the monetary policy meeting last week

Chinese inflation data is key to watch which is likely to ease to 5.2% from 5.4% during March, may support high yielder and Euro.  Pullback possible till 1.4450-1.45 range as long as it holds the 1.4250 area. EURINR (May MCX-SX) respectively may see pulls toward 64.55-64.60 levels with support at 63.90 marks.

From USDINR point of view, INR has depreciated a tad from morning opening. The May future contract on MCXSX is now around 44.90 levels. Pressure can be felt around 45.00-45.05 levels from exporters. Power Finance Corporation's (PFC) follow on public offer (FPO) may be handy with slight revival from FII flows. USDINR May can be sold on pullback towards 45.00-45.05 range. One can expect a tgt of 44.80.

Pound may see mild recovery tracking Euro while at limited pace.  The BOE inflation report is again expected to show rising inflation expectations. BoE cannot go for a rate hike with weak string of weak economic data coming out from the country. Pullback in GBPINR can be expected till 73.75-73.90. Risk is on downside.

FX For the day, 09 May, 2011

The EURINR dropped early Monday to a level expected last Friday. Suggested to sell at 65.50-65.60 On Friday. The exchange rate posted a low of 64.48 today. (MCXSX- May future)

From the FX and asset side, the Chinese inflation data is critical this week which is expected to decline to 5.2% from 5.4% earlier. Retail Sales and Industrial production is also due which are on a positive reading. Data will be released tomorrow in Mid Asian hours.

In other developments, Sino-US Strategic and Economic Dialogue (S&ED) is expected to discuss about the revaluation of the yuan. A few days before the third S&ED, US Treasury Secretary Timothy Geithner repeated that the "yuan is undervalued" and asked China to adjust the exchange rate at a faster pace in order to correct the problem. His remarks echo US Senator Charles Schumer, who said he was "dissatisfied" with China's failure to promise a faster revaluation of the yuan during his recent visit to the country.

Yuan revaluation is less likely in immediate scenario, but the dialogue may bring in some hope of further revaluation by China in coming days. Revaluation of yuan is a positive sign for India and as well as for south Asian export oriented economies.

Today, we may see some mild pulls in EURUSD towards 1.4450-1.45 mark while trend remains weak as of now. The EURINR may see moves between 64.30-64.60 with sideways manner. EU public debt remains a concern and there are rumors of Greece exiting from euro currency on Friday.

In case of USDINR, decline is likely towards 44.55-44.60 mark in the interbank market while at limited pace.

View on Indian FX market

The ECB came with a dovish statement yesterday against markets expectation and showed concerns of appreciating Euro. Market reaction- a sharp downturn in EUR/USD from 1.49 to 1.4550 and most of the high yielding currencies came under pressure. Commodity currencies like AUD and CAD fell with commodities plunged on relative gain of US dollar.

Today, EURINR in India fell over 1 rupee as USDINR failed to see major pulls. As EURUSD looks bearish and set for 1.42-1.43 in coming weeks, EURINR has a potential to drop till 64.70-64.40 marks.

Ideal strategy to sell on pullbacks such as 65.50-65.60

In case of USDINR, the upside is capped on selling by exporters. The Spot posted a high of 45.90 and failed to catch up the overseas market gain. Stocks set for a mild pullback after strong downtrend from past couple of day’s. The decline in local shares past few sessions has offset the positive news of a rate hike by the RBI. Growth expectation is being lowered and CAD is expected to rise again. NIFTY has a possibility to test 5000 and below that 4800 as well. In such a scenarios USDINR may hover around 44.50-45.20 mark in the interbank market.