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THE WEEK GONE BY AND THE WEEK AHEAD .

April 5, 2013

This week entailed significant announcements from the Central banks. BOJ made a landmark departure from the past and announced an aggressive stimulus programme to inject $1.4tn in the next 2 years to stoke demand. Yen weakened considerably as a result. ECB Chief managed to restore some confidence back into the Euro by promising Euro zone stability

This week saw a slew of announcements from Central Banks. In its first meeting under the leadership of the newly appointed governor Haruhiko Kuroda, the BOJ boosted its stimulus programme by saying it will double the monetary base and inject about US$ 1.4 tn into the economy in less than two years by buying government bonds across the yield curve. Post the announcement, the Japanese yen weakened to a three and a half year low of 97.83 against the dollar before closing the week at 97.5. In Europe, the ECB kept the key interest rates unchanged while stating that its monetary policy stance will remain accommodative for as long as it is needed and that the bank stands ready to cut interest rates if the economy deteriorated any further. The Euro, after touching a five month low post the announcement, recovered and closed the week higher.

The US dollar weakened against most currencies on weaker than expected jobs data and weak manufacturing data released earlier in the week as markets continued to play on short term sentiments. Closer home, both the INR and equity markets remained week on the back of concerns about the political instability pointing towards early elections, current account deficit concerns and large equity sales by foreign investors. 28 Dec 2012

The key events of last week:

China manufacturing PMI for the month of March improved marginally to 51.6 from 50.4 in the previous month indicating a gradual improvement in domestic demand conditions. Total new orders rose for the sixth consecutive month and new export orders also increased marginally. Finished goods inventory increased for the first time in sixth months. Euro zone manufacturing PMI slipped to a three month low of 46.8 in March as against 47.9 in February indicating deterioration in business conditions in the Euro zone economies. Both output and new orders fell at a faster rate. While manufacturers reported a stronger demand from Asia and US, demand within the Euro area showed signs of renewed weakening.

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Germany Ireland Austria Netherlands Italy Spain France Greece

49.0 48.6 48.1 48.0 44.5 44.2 44.0 42.1

2-month low 14-month low 3-month low 10-month low 7-month low 5-month low 3-month high 2-month low

Unemployment in the Euro zone hit a record high of 12 percent in February. Spain and Greece recorded the highest level of unemployment at 26 percent each. Factory prices in Euro zone increased 1.3 percent, below expectations, to a seven month low. On m-o-m basis prices increased 0.2 percent in February, slightly ahead of expectations. Euro zone retail sales declined by 0.3 percent m-o-m in February, mostly led by the non-food sector which fell by 1.1 percent. The largest fall was reported in France which offset the gains in Germany and Spain. Us non- manufacturing PMI in March fell to 54.4 from 56.0 in February with new orders, export orders and employment all registering declines. Construction spending in US rose 1.2 percent in February, led by a surge in home construction, the highest level in four years. The advance was led by a 2.2 percent rise in private residential construction, the best in last four years. US trade deficit contracted in February led by decline in oil imports. Oil imports fell to the lowest level in two decades. The trade deficit in February declined by 3.4 percent to US$ 42.96 bn from a revised US$ 44.46 bn in the previous month.

And closer home.

India manufacturing PMI fell to 52.0 in March from 54.2 in February, the lowest in sixteen months. Input prices continued to increase although at a slower pace. Output growth slowed down on the back of deceleration of new orders and power outages. Finished goods inventories were depleted to meet demand partly due to output disruptions due to power cuts. The INR traded lower during the week, regaining some of the losses in the later part of the week on the back of political instability and current account deficit concerns.

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Indian stock markets remained weak on global cues and with FIIs turning net sellers this week.

So what does the next week hold...?

Economic data coming from the US continues to add to confidence of a gradual recovery in the economy, although markets continue to play on how and when the Fed is likely to start reducing its monthly purchases. The Euro zone worries have returned after the Cyprus crisis and a host of economic data pointing to the level of recession in the economies, casting a shadow on ECB chief Mario Draghis forecasts of a recovery later this year. In Japan, while the monetary stimulus announced by the BOJ this week would likely keep the governments cost of borrowing low over the next two years, the structural risks to the economy remain. Closer home, markets are likely to remain volatile with the political instability while the focus will be on the IIP and CPI numbers to be released next week. We expect the INR to remain considerably under pressure despite some USD weakness against the Euro after ECB meeting last week. The reason simply is that despite $35bn of portfolio flows, INR could not gain considerably due to a widening Current Account Deficit. Now that some foreign fund selling has started, there could be a pause on FX inflows. FDI flows slow down in the first quarter of the new fiscal anyways. All in all, with flows slowing, rising political uncertainty, and profit-taking in equities, we believe the risk to the rupee remains on the downside.

Important upcoming International events to be tracked:

Date 06/04/2013 08/04/2013 09/04/2013 09/04/2013 09/04/2013 09/04/2013 09/04/2013 09/04/2013 09/04/2013 10/04/2013 11/04/2013 11/04/2013 11/04/2013 Country US Germany Japan China China China Germany UK UK US Germany US US Event Consumer Credit (Consumer Credit - M/M change) Industrial Production BoJ MPB Minutes Merchandise Trade Balance Consumer Price Index Producer Price Index Merchandise Trade Industrial Production Merchandise Trade EIA Petroleum Status Report CPI Jobless Claims Bloomberg Consumer Comfort Index Period Feb, 2013 Feb, 2013 Jan, 2013 Mar, 2013 Mar, 2013 Mar, 2013 Feb, 2013 Feb, 2013 Feb, 2013 wk4/5, 2013 Mar, 2013 wk4/6, 2013 wk4/7, 2013

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12/04/2013 12/04/2013 12/04/2013 12/04/2013 12/04/2013

Japan EMU US US US

Tertiary Index Industrial Production Retail Sales Producer Price Index Consumer Sentiment

Feb, 2013 Feb, 2013 Mar, 2013 Mar, 2013 Apr, 2013

Important upcoming Domestic Events

Date 05/04/2013 08/04/2013 10/04/2013 10/04/2013 10/04/2013 10/04/2013 10/04/2013 10/04/2013 12/04/2013 12/04/2013 12/04/2013 12/04/2013 12/04/2013 12/04/2013 12/04/2013 Event Foreign tourist arrivals (YoY Chg) Automobile sales data (y/y chg) 91 day T- Bills auction of Rs 50 bln (cut-off yld) Reserve Money (change on wk) Foreign merchandise trade Exports (YoY Chg) Foreign merchandise trade Imports (YoY Chg) OECD composite leading indicator for India 182 days T- Bills auction of Rs 50 bln (cut-off yld) CPI Inflation - Rural (YoY Chg) CPI Inflation - Urban (YoY Chg) CPI Inflation - Combined (YoY Chg) IIP (YoY Chg) WMA (ways and means advance) - to central govt WMA (ways and means advance) - to state govts FX reserve (change on wk) Period Mar Mar Wk to Apr 5 Mar Mar Feb Mar Mar Mar Feb Wk to Apr 5 Wk to Apr 5 Wk to Apr 5 Frequency Monthly Monthly Weekly Weekly Monthly Monthly Monthly Fortnightly Monthly Monthly Monthly Monthly Weekly Weekly Weekly

TECHNICAL VIEW
As per our previous week view, USDINR prevailing uptrend is still intact. Last week we saw rupee weaken considerably to fresh lows at 54.88-89 before closing at 54.81 We expect rupee weakness to continue despite a strong up move in the Euro. We expect to touch 55.15 on spot next week Rising short term moving averages and MACD suggest that momentum on the upside remains strong If 55.15 breaks convincingly and the market closes above that, we expect the move to then explore 55.90-56.00 area If not in the long position already, we believe Monday could provide an opportunity to buy USD lower due to strong Euro up move on Friday. We strongly remain biased to buy on dips

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USDINR Spot Chart: Reuters Disclaimer:

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