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Rupee to Gain as Inflows Continue - HDFC Securities

* Asian stocks looked set for a muted start after their U.S. peers retreated on concerns about excessive investor optimism. Treasuries climbed and the dollar weakened overnight. All indicates the weaker start for USDINR at local bourses.

* The one month forward USDINR last quoted at 73.73, the 8 paise lower when domestic market closed. On Tuesday, Rupee paused three day down tick and make come back with domestic equities. Spot USDINR closed at 73.37 falling 18 paise after witnessing biggest one day fall on Friday.

* The official number of GDP was quite encouraging suggesting, country is officially out of recession with growth of 0.4%.

* On positive front, foreign fund inflows continues through primary and secondary markets supporting rupee while central banks remain aside as volatility came down.

* Technically, spot USDINR is still in down trend with resistance at 73.80 and support at 73 and 72.80.

* On domestic bond market, India’s sovereign bonds may open with positive bias on the overnight easing in crude prices and U.S. Treasury yields. Traders await a 190b rupees sale of treasury bills to gauge the direction of shorter-term rates. 10-year yields rose 3bps to 6.23% on Tuesday. From economic data front, Markit India Services PMI and Composite PMI for Feb. to be released today which is expected to remain above 50 level.

* The greenback extended its decline versus all Group-of-10 members as American stocks fell and a commodities gauge held gains, with oil sliding.

* Federal Reserve Governor Lael Brainard said it will take “some time” to meet the conditions laid out by the U.S. central bank for reducing the pace of its massive asset purchases, while noting recent bond market volatility.

Technical Observations:

USDINR March futures held the support of 20 hours Moving Average support. However, the momentum remained weak as it closes near day’s low.

We expect 73.33, the 55 hours Moving Average and 73.20, the gap of 26 February will act as near term support.

Weakness in momentum oscillators and indicators on hourly chart suggesting downward price action in coming days.

We remain bearish in USDINR March futures and expect 73.20 odd levels in coming days while trading above 74.34 will negate the said view.

USDINR March Daily Chart

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