Offshore market remains the driver, as speculators pile on a carry trade with short US dollar and long rupee. Sentiment is becoming stretched, as market players seems to be becoming sanguine on a single positive outcome from the upcoming National elections, in a months time. So much has been the lure of a parabolic trend in domestic equities, that investors have become oblivious to geo-political and economic risks around the globe. We believe, India is basking in the sun of financial liquidity, which the central banks from developed has supplied in abundance. Trends, which are built on hope and liquidity can become self fulfilling and can have life of their own. Therefore, at this stage we will lay greater emphasis on technical chart structures and global inter-market signals, than trying to analyse markets through the lens of macro and micro economic structures.
Overnight, Japanese current account data posted a record deficit in January. The current account deficit widened to a record 1.589 trillion yen, easily exceeding a median estimate for a 1.4 trillion yen deficit as shipments failed to substantially pick up despite a weaker yen. Jitters in Ukraine continues. In turkey, fresh round of political turmoil has seen the countries currency and bond prices weaken. In China, iron ore and copper prices fell sharply, as market is pricing the concerns of a significant adverse impact on Chinese growth from stressed financial system and excesses in the economy and the real estate sector. Chinese loan creation slowed in February, amidst the concerns over risk of default in the trust loans. Chinese banks made 644.5 billion yuan ($105.21 billion) worth of new yuan loans in February, lower than a forecast of 716 billion yuan and below the previous month's 1.3 trillion yuan.
Over the near term, traders have a number of economic data from major world economies to digest. Industrial sector statistics will roll out from major economies around the Europe and also UK central bank will present its latest inflation report. German trade balance and US JOLTS employment survey will also be watched. Keep an eye on the global equity and credit markets. Indian equities have raised hopes of resumption of the bull trend that had stalled in 2008. As long as the equity bulls can prevent any technical damage on pull-backs, Rupee will also be cushioned at lower levels. USD/INR has strong support between 60.70/80 region on spot, which if breached can see prices fade towards annual price average of 60.00/60.30 levels. Resistance is expected around 61.35/40 region and then around 61.70/85 region. We expect oilers, importers, FCY loan re payers and also the central bank to show up on the USD demand side, sub-61 handle on spot.
By Anindya Banerjee, analyst, Kotak Securities