Rupee and Forex Report for July 2020

Insignia Consultants

New Delhi

Sunday, 28 June 2020

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FOREX (July Month) TECHNICAL REPORT

Global Key factors to watch in July:

  • 2nd July: US June nonfarm payrolls. NFP needs to beat street expectation for the US dollar Index to rise.
  • Investor’s dilemma: Economic growth or second wave of coronavirus. Trend of Covid in the second half of July in Europe is the key. UK and Eurozone will open its borders for trade and tourism. Euro and UK pound will gain sharply if there is no significant increase in covid cases once borders open.
  • Bond yields in USA, UK, Eurozone and UK. Significant increase in bond yields globally can result in sharp correction in safe havens.

India’s key factors to watch

  • Effectiveness of measures to contain COVID. Another failed month can result in rupee break past 77.00 to 78.00 and more. Importers watch.
  • Monsoon progress and coverage: Monsoon coverage is key. Over the past few years North West India has been rain deficit. North West India is the grain belt of India. Kharif crop is the key to rural demand. Rural demand is the key India’s growth. Urban middle class demand has less impact on India’s economic progress.
  • Global crude oil prices: If brent crude oil prices break past $50 in July then Indian petrol and diesel prices will easily break past Rs.95 per litre and float over Rs.95 for a very long time. Negative impact will be there in consumption, jobs creation and food price inflation.
  • There is pent up demand due to closure. This higher pent up demand can continue till August. There after everything is known.
  • Last but not the least. Relation with China. An armed war with China is imminent. War with China can happen anytime between now and till December. (i) A few days of border skirmishes (with the use of airforce) will result in a temporary weakness of rupee against major currencies.  (ii) A sustained war with China, with the involvement of airforce and more areas along the Indo-Chinese border can result breaking past 78.00 against the US dollar either in July or august. Global investors will postpone their investment in India if there is a sustained war with India.

SPOT/INTERBANK TECHNICALS

 

USD/INR

EURO/INR

GBP/INR

JPY/INR

CMP

75.6200

84.8375

93.2825

70.5400

S5

74.0775

82.6829

89.9850

67.8500

S4

74.7550

83.4200

90.7764

68.4956

S3

75.1125

83.7545

91.6338

69.1950

S2

75.2525

84.1684

92.0229

69.5124

S1

75.4150

84.5650

92.5043

69.9052

 

 

 

 

 

R1

76.7675

85.5066

94.0607

71.1748

R2

76.1125

85.9205

94.5421

71.5676

R3

79.3925

86.2550

94.9313

71.8850

R4

76.7925

86.9921

95.7886

72.5844

R5

77.2175

87.6725

96.5800

73.2300

 

CMP= Current price market price

ABOVE TECHNICALS ARE ONLY FOR REFERENCE

 

  1. US DOLLAR-INDIAN RUPEE (USD/INR):  (i) Key support for July: 74.9475 (hundred day moving average). (ii) Key resistance for July: 76.4850. (iii) Bearish case: Rupee can fall to 74.7550 and 74.4450 in case 76.4850 is not broken in July. (iv) Bullish case: Hundred percent retracement is at 74.9075. Rupee can rise to 76.4850 and 77.1625 in case rupee does not fall 74.9075. Strategy for exporters: Cover near term receivables on sharp rise of one percent. For end July receivables wait till 3rd July with a trailing stop loss below 74.9025. Strategy for importers: Cover neat term payables on sharp dips. For end July payables use a trailing stop loss of 76.2025. Trend of rupee on or after 8th July will be sustainable.
  2. EURO-INDIAN RUPEE (EURO/INR):  (i) Key support for July: 824350 and 83.4200. (ii) Key resistance for July: 85.6525. (iii) Bearish case: Euro/inr will crash or be in a short term bearish phase only if it trades below 83.4200 for a few days. (iv) Bullish case: Euro/inr can rise to 85.9950 and 87.6725 as long as it trades over 83.4200. Strategy for exporters: Cover near term receivables on sharp rise of one percent. For end July receivables use any weakness of 86.0000 (if any) and above to hedge receivables. Strategy for importers: Use trailing stop loss of 85.4175 for payables till 3rd July. For payables on or after 6th July, use trailing stop loss of 76.1225.
  3. UK POUND – INDIAN RUPEE (GBP/INR (i) Key support for July: 93.2825 (hundred day moving average and 92.6950 (two hundred day moving average). (ii) Key resistance for July: 94.8825. (iii) Bearish case: Gbp/inr will crash or be in a short term bearish phase only if it trades below 93.1375 on or after 3rd July to 92.6950 and 91.3075. (iv) Bullish case: Gbp/inr can rise to 94.8825 in July to rise to 96.5800 and 98.6800. Strategy for exporters: Cover near term receivables on sharp rise of one percent. For end July receivables use any weakness of 97.0000 (if any) and above to hedge receivables. Strategy for importers: Use trailing stop loss of 94.1175 for payables till 3rd July. For payables on or after 6th July, use trailing stop loss of 94.1550 or cover/hedge if gbp/inr break past 94.1500.
  4. JAPANESE YEN-INDIAN RUPEE (JPY/INR):  Key support for July: 69.9550. (ii) Key resistance for July: 71.7100. (iii) Bearish case: Yen/inr will crash or be in a short term bearish phase only if it trades below 69.9500 on or after 3rd July to 69.5400 and 68.600. (iv) Bullish case: Rise of Yen/inr in July is dependent on the ability/inability to break past 71.7100. Only a break of 71.7100 will result in 73.2300 and 74.4200. Strategy for exporters: Cover near term receivables on sharp rise of one percent. For end July receivables use trailing stop of 69.5400 and forget. Strategy for importers: Use trailing stop loss of 71.0400 for payables till 3rd July. For payables on or after 6th July, use any stop loss of 71.7100 and wait. Big correction will be there if yen/inr does not break 71.7100 in July.

To conclude

I am not writing of foreign portfolio inflows. Global investors will invest in India as fundamentally India is still better off than global peers BUT weak as compared to East Asian peers. Foreign investors never invest for the short term if and when rupee is in a depreciating trend. Trend of the rupee is the key to performance of stock markets as well as attracting short term foreign investor’s hot money. Everything is unknown. COVID CONTAINMENT IS THE KEY FACTOR TO WATCH FOR INDIA IN JULY.

THE ABOVE REPORT IS NOT FOR TRADING PURPOSE

Disclaimer: Any opinions as to the commentary, market information, and future direction of prices of specific currencies, metals and commodities reflect the views of the individual analyst, In no event shall Insignia Consultants or its employees  have any liability for any losses incurred in connection with any decision made, action or inaction taken by any party in reliance upon the information provided in this material; or in any delays, inaccuracies, errors in, or omissions of Information. Nothing in this article is, or should be construed as, investment advice. All analyses used herein are subjective opinions of the author and should not be considered as specific investment advice. Investors/Traders must consider all relevant risk factors including their own personal financial situation before trading. Websitewww.insigniaconsultants.in. Prepared by Chintan Karnani

Disclosure: Insignia consultants or it employees do not have any trading positions on the trading strategies mentioned above. Our clients do have positions on the trading strategies mentioned in the above report.

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NOTES TO THE ABOVE REPORT

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