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Rupee Outlook and Strategy

• The US dollar index continued to trade near its seven month low at 102 as a weaker set of economic numbers increased the fears of a recession in the US economy. The data released on Thursday indicates the weakness in the housing sector. The housing starts declined to a two-year low at 1.38 million whereas building permits weakened to 1.33 mn against market expectation of 1.35 mn

• Rupee future maturing on January 27 depreciated by 0.12% to settle at 81.44 on Thursday amid weak domestic market sentiments

• The rupee is likely to appreciate towards the zone of 81.20 amid weakness in dollar. Further, anticipation of a disappointing Existing home sales data from the US could weaken the dollar. The sluggishness in housing sector and moderating inflation numbers have fuelled expectations that the Fed will reduce the magnitude of rate hike. US$INR is facing the key resistance of 50 day EMA 82, which could act as key level for the pair. Below 81.20, it would slide to 80.80

Euro and Pound Outlook

• The Euro rose 0.38% on Thursday to end near its eight-month high at 1.083. Hawkish comments from ECB President Lagarde and ECB Governing Council member Knot gave the Euro a boost when they favoured the extension of interest hike regime as inflation is too high. Moreover, the December ECB meeting minutes was supportive for EUR/USD as most members or officials preferred a 75 bps rate hike rather than a 50 bps rate hike

• The Euro is expected rise towards 1.088 mark as long as it holds above 1.076. A move above 1.088 would bring fresh buying interest in the pair and extend its rally towards 1.0920. EURINR (January) is expected to rally towards 88.50 as long as the pair remains above 87.60

• The pound continued to trade firm near its six month highs but the decline in RICS House Price Balance number limited its upside. Further, the pair had advanced as the inflation numbers, which are at 40-year highs has increased the chances of 50 bps rate hike in the coming policy

• The pound is expected to trade with a positive bias amid expectation of recovery in the retail sales numbers, which is expected to rise by 0.5% against previous reading of decline by 0.4%. Technically, 1.23 holds key support to the pair. As long as it sustains above it, it is expected to rise towards the 1.2445 mark. GBPINR (January) is expected to march towards 100.80, followed by 101 as long as it holds above the key support of 100.00

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