Markets continue to be volatile on the back of mixed trade signals both from the external and domestic economy. While the longer term outlook of India’s growth story and an appreciating Indian rupee remain intact, markets are probably taking a breather before resuming the ongoing trend.

Over the past month the USD/INR experienced excessive volatilities first dropping to lows of 45.80 in the first 8 days and then again bouncing off to test the 47.50 levels. Yesterday’s closing of 46.81 might suggest a revival of the downward trend for the rupee but outlook remains very uncertain with the indicators that the USD/INR pair feeds on not showing any clear signs.

Exchange Rates

Key International Indices and Commodities

Markets continued to remain volatile during the whole fortnight. After breaking 17000 in early October, Sensex lost close to 1500 points in 10 trading sessions to close under 16000. Other major currencies continue to be volatile on the backdrop of uncertainty prevailing in the markets. The Euro has not been able to break the 1.4900 resistance level and fell sharply after the adverse unemployment data at 10.2 % (highest in many years) and non farm payroll which also came adverse). While it remains to be seen what impact the adverse data will have on the market, there are two likely scenarios emerging out of the same.

Scenario 1- Rising unemployment in US will make investor rush to buying USD and reduce their exposure in risky assets. The price of gold has rallied to a new record high which may spark some concern of an impending bubble in a number of asset markets including gold. The first reaction as was evident in trading on 06^th Nov as the data came out was the weakening in the Euro and GBP which fell sharply before stabilizing in the later part of New York trade.

Scenario 2- The weak economic data also reduces the odds of Fed tightening in the near term and hence give an impetus to the Dollar carry trade to continue. This would add more shorts in USD.  While this is likely to percolate to the USDINR, we need to trade cautiously.

Recent US data

October unemployment rose to 10.2% (Consensus- 9.9%)  and nonfarm payrolls declined by 190K (Consensus- 175K).

The next week sees Initial Jobless Claims, Monthly Budget Statement (US) and Trade Balance figures coming out.

USD/INR Weekly outlook

Markets would continue to be choppy between 46.65 and 47.25 ranges. Markets would be closely being linked to the Asian Equities and Euro. Any weakening in the same might see shorts being covered and a move above the 47 levels.

R3:- 47.9900

R2:- 47.6200

R1:- 47.2362

Current Levels: – 46.81

S1:- 46.77

S2:- 46.35

S3:- 46.02

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1. USD/INR Downside Prevails
2. USD-INR retracing the fall
3. Currency Outlook – Fortnightly Currency Review November