Monthly Currency Derivatives

Transcription

1 Monthly Currency Derivatives US$INR: Declines towards can be utilised to buy for target of 9... Research Analyst Amit Gupta Gaurav Shah January, 217

2 Positional Recommendations Buy US$INR Buy US$INR January future at , Target: 9., Stop loss:. US$INR Strategy Rationale: US$ continues to strengthen supported by a 2-bps interest rate hike by the Fed in its December monetary policy meeting. The Fed raised its hawkish outlook for 217. As such, market expectations have increased to the quantum of three hikes in 217 from two before the meeting. On the domestic front, reducing yield differentials between US-India spread, continued outflows redemptions from emerging market including India, worsening CAD in Q21, expectations of firming crude oil prices are concerns that would limit gains in the rupee. Sell EURINR Sell EURINR January future at , Target at 9. and stop loss at 7. Rationale EURINR Strategy ECB in its December monetary meeting tweaked its asset buying programme. Against market expectation, ECB effectively increased its stimulus by billion. Although it maintained the policy rates at same level, ECB tempered maturity of purchases from two to years to one to years buying assets below the deposit rate (-.%). The Fed raised its rate by 2 bps in its December monetary policy meeting. We expect such a diversionary path to continue to pressurise the EURUS$ pair. 2

3 Deal Rupee Team remains weak At Your on hawkish Service US Fed interest rate outlook... December market action: US dollar continued its rally in December from November as the US Fed raised interest rates by2bps,forthefirsttimein21andasecondtimeinalmost a decade. Most major currencies as well as emerging market currencies weakened vs. US$ including rupee. US economic data remained on a mixed note during the December. Core CPI YoY was steady at 1.7% while PCE core CPI fell to 1.% from 1.7%. November new home sales surged to 92 units from 7 units. The market would focus on upcoming US December employment data. Rupee remains weak: The rupee weakened from the highs of 7.2 to 8.8 before settling at 7.92 in December due to interplay of external as well as domestic factors. The Indian currency ended a sixth consecutive year of losses against US$ at 7.92 (spot) ending 21 with losses of almost 2.7%. India s October Industrial production fell 1.9% vs..7% previously. Retail inflation further fell to.% from.2%. Futures and options activity: it In the futures segment, an OI increase has been observed as the pair approaches higherh levels near 9.. In the options segment, 9. strike Call has higher OI build up while 7. Put strike has the highest position build-up. OI structure seems to suggest US$INR pair to find support above 7. while 9. is the crucial level. Sustained gains above same could see the pair testing 7. on the higher side. January series options OI build-up Increase in OI as pair approaches 9. levell in 's Options OI i Calls OI Put OI Source: Bloomberg, ICICIdirect.com Research Futures OI in 's Jan-1 Feb-1 Feb-1 Mar-1 Apr-1 May-1 Fut OI Jun-1 Jul-1 INR fut Aug-1 Sep-1 Oct-1 Nov-1 Dec-1 Jan

4 Deal US$ continues Team to strengthen At Your due Service to rising CFTC data, gains over major currencies CFTC data shows increasing dollar longs supported by US Rising CFTC Longs positions in US$ interest rate hike and expectations of higher inflation on 12 account of Mr Trump s campaign trail policies CFTC DXY long position CFTC DXY Short position FOMC median Dot plot and OIS value (market) consensus 1 is at three hikes suggesting g the consensus among major 8 participants for three interest rate hikes in 217 The dollar index has gained sharply trading at 1-year highs due to divergent monetary policy path. Strength in US$ is also supporting gains over most emerging market 2 currencies Mar-1 Aug-1 Jan-11 Jun-11 Nov-11 Apr-12 Sep-12 Feb-1 Jul-1 Dec-1 May-1 Oct-1 Mar-1 Aug-1 Jan-1 Jun-1 Nov-1 Dots plot chart shows hawkish US interest rate outlook No of rate hik kes Fomc Dot Plot OIS (Market) Dollar index gains sharply on expectations of faster interest t rates hike Ju ul-98 Ju ul-99 Ju ul- Ju ul-1 Ju ul-2 Ju ul- Ju ul- Ju ul- Ju ul- Ju ul-7 Ju ul-8 Ju ul-9 Source: Bloomberg, CICIdirect.com Research Ju ul-1 Ju ul-11 Ju ul-12 Ju ul-1 Ju ul-1 Ju ul-1 Ju ul-1

5 Deal Domestic Team factors At remain Your catalyst Service for further weakness in rupee against US$... Domestic markets (equity + debt) further suggest Domestic markets see continued outflows in December redemption to the tune of over 28 crore in December. Foreign investment turned negative for 21 India s crude oil basket prices have been rising in line with international crude prices. Brent oil prices have rallied 2 1 almost 1% from 21 lows made at the start of the year. Rising oil prices would need higher US$ demand, which -1 would put pressure on the rupee -2 - The 1-year yield differential between US and India reduces - sharply amongst select emerging yield spreads. Lower - yield differential reduces debt investment appeal, triggering outflows from domestic debt markets Rise in India s oil basket price to lead to higher US$ demand I Investment in Rs. Crores FI Jun-1 Aug-1 Oct-1 Dec-1 Feb-1 Apr-1 Jun-1 Aug-1 Oct-1 Dec-1 Feb-1 Apr-1 Jun-1 Aug-1 Oct-1 Dec-1 Feb-1 Apr-1 Jun-1 Aug-1 Oct-1 Dec-1 Yield differential between US, India dive sharply since November $ per barrel Apr-1 1 Ma ay Jun-1 1 Jul-1 1 Aug-1 1 Sep-1 1 Average indian oil basket Brent crude oil per bl Oct-1 1 Nov-1 1 Dec-1 1 Jan-1 1 Feb-1 1 Mar-1 1 Apr-1 1 Source: Bloomberg, ICICIdirect.com Research, PPAC Ma ay Jun-1 1 Jul-1 1 Aug-1 1 Sep-1 1 Oct-1 1 Nov India Brasil China Indonesia 1 Malaysia Mexico 12 Russia S.Africa Sep-1 1 Oct-1 1 Nov-1 1 Dec-1 1 Jan-1 1 Feb-1 1 Mar-1 1 Apr-1 1 May-1 1 Jun-1 1 Jul-1 1 Aug-1 1 Sep-1 1 Oct-1 1 Nov-1 1 Dec-1 1

6 EURUS$ to trade weak as pair breaches support of 1. level on divergent Deal Team At Your Service monetary policies TheeurotradedlowerinDecemberastheratehikeby the US Euro area November inflation picks up Fed and extension of stimulus by ECB weighed on the pair. Euro fell towards 1. level from highs of 1.87 before ending the month at 1.9 level Inflation rose slightly in the eurozone in November although still far from ECB target of just below 2%. ECB reiterated in its. December monetary policy meeting, it would further increase/extend the size /duration of stimulus, if needed -. In its December monetary policy meeting although ECB kept -1 rates unchanged, it tweaked its asset purchase programme flation HICP y/y in Mar-1 May-1 Jul-1 Sep-1 Nov-1 Jan-1 Mar-1 May-1 Jul-1 Sep-1 Nov-1 Jan-1 Mar-1 May-1 Jul-1 Sep-1 Nov-1 Jan-1 Mar-1 May-1 Jul-1 Sep-1 Nov-1 (APP). ECB extended its monthly bond buying by billion (bn) till December 217. Effectively it increased stimulus by bn against market expectation of extending present 8 bn bond buying per month till September 217 EURUS$ pair breaches support of 1. Euro-US$ pair breached its crucial support of 1. due to divergent monetary policy expectation. We expect this to keep the pressure on the euro. It could test 1.2 on the lower side. We suggest shorting EURINR January future at level, target at 9. and stop loss at 7. $ Spot rate Mar-9 Mar-1 Mar-11 Mar-12 Mar-1 Mar-1 Mar-1 Mar-1 EURUS$ * Call has been initiated on iclick2gain on th November 21. Source: Bloomberg, ICICIdirect.com Research

7 US$JPY continues to gain as Trump win supports US$ while weak inflation makes Yen stutter Deal Team At Your Service The US$JPY pair continues to consolidate near 118-levels Japan inflation slumps in November as economy lacks after gaining over 11% post Donald Trump becoming President-elect. Expectation of rising monetary divergence momentum between the Fed and BoJ is supporting gains in the pair Japan s November ex-food National CPI fell.% YoY as the economy failed to pick up momentum even though 2 the Japanese Yen remained weak 1 CFTC data shows steeply rising short positions in Japanese Yen as huge stimulus weighs on currency We expect US$JPY pair to remain firm. Near term support -1 is at 11 level while the pair could test 121 on higher side Na ational CPI ex fresh food YoY May-1 Jul-1 Sep-1 Nov-1 Jan-1 Mar-1 May-1 Jul-1 Sep-1 Nov-1 Jan-1 Mar-1 May-1 Jul-1 Sep-1 Nov CFTC data shows steeply rising short Yen positions Japanese Yen long positions Japanese Yen short positions Sep-1 Oct-1 Nov-1 Dec-1 Jan-1 Feb-1 Mar-1 Apr-1 May-1 Jun-1 Jul-1 Aug-1 Sep-1 Oct-1 Nov-1 Dec-1 USDJPY Spot US$JPY continues to gain with immediate support at Feb b-1 Ap r-1 Jun n-1 Aug g-1 Oct t-1 Dec c-1 Jan n-1 Source: Bloomberg, ICICIdirect.com Research Ma r-1 May y-1 Ju l-1 Sep p-1 Nov v-1 7

8 GBPUS$ to meet supply pressure near 1.27 as BoE raises concerns on uncertainty due to Deal Brexit trade Team talks At Your Service GBP traded weak in December post BoE meet. GBP made a high of while ending the month lower at Weak Sterling helps UK inflation recover further UK CPI y/y BoE in its December monetary policy meet maintained interest rates at.2%. It continued with buying up to 1. 1 billion of corporate bonds and billion of 1 government bonds to take total stock to billion. GBP pared gains as BoE raised concerns on the near future growth prospects. It said the inflation target could be within six months while emphasising i on limitsit above which target inflation could be tolerated -. BoE raised concerns on uncertainty over future trading arrangement of UK with other EU members. Limited access could restrain business activity and supply GBPUS$ may find hurdle near 1.2 levels growth 1.7 We expect GBPUS$ to trade in the range with bias of 1. selling at higher levels. GBPUS$ pair could feel pressure 1. near 1.2 levels with targets lower at 1.21 levels. Prices need to decisively cross above 1. to gain in near term 1 1. CPI % monthly - Y/Y GBPUS$ Spot Jan-1 Mar-1 May-1 Jul-1 Sep-1 Nov-1 Jan-1 Mar-1 May-1 Jul-1 Sep-1 Nov-1 Jan-1 Mar-1 May-1 Jul-1 Sep-1 Nov Fe eb-1 A pr-1 Ju un-1 Au ug-1 Oct-1 De ec-1 Fe eb-1 A pr-1 Ju un-1 Au ug-1 Oct-1 De ec-1 Source: Bloomberg, ICICIdirect.com Research 8

9 Global Snapshot Security Current price December close November Close % change Nifty DJIA S & P CAC DAX FTSE NIKKEI NYMEX Crude BRENT Crude GOLD G-Sec GSec 1 yr yield G-Sec 2 yr yield US 1 yr yield Dollar Index Euro GBP JPY INR Source: Bloomberg, ICICIdirect.com Research 9

10 Deal Forthcoming Team Events At Your Service India: January : PMI manufacturing January : GDP annual Estimate 1 January : Exports, Imports and Trade Balance 12 January : CPI & Industrial Production 1 January : Fiscal Deficit US: January : ISM Manufacturing, PMI Manufacturing January : FOMC minutes January : Change in Non-farm payrolls & Unemployment rate 1 January : PPI and Retail Sales 18 January : CPI Euro zone: January : Services, Composite PMI January : Monetary policy meeting minutes January ; Retail Sales 18 January : CPI 19 January : ECB Monetary policy meeting China : 1 January : PMI Manufacturing 8 January : Imports, Exports & Trade Balance 9 January : CPI, PPI 17 January : Industrial Production, Retail sales, GDP 27 January : Industrial profits Japan: January : Nikkei Manufacturing PMI 17 January : Industrial production 2 January : Imports and Exports 27 January : CPI 1 January : BOJ Monetary policy meeting UK: January : Manufacturing PMI 11 January : Industrial and Manufacturing production 17 January : CPI and PPI 2 January : Retail Sales 2 January : GDP 1

11 Portfolio allocation in Derivatives Products Trading Portfolio allocation It is recommended to spread out the trading corpus in a proportionate manner between the various derivatives research products. Please avoid allocating the entire trading corpus to a single stock or a single product segment. Within each product segment it is advisable to allocate equal amount to each recommendation. For example: The Daily Derivatives product carries 2 intraday recommendations. It is advisable to allocate equal amount to each recommendation Products Allocation Return Objective Product wise Max allocation Frontline Mid-cap allocation per stock Number of Calls Stocks stocks Duration Daily Derivatives % 2-% 2 Stocks 1% 2-% Intraday Weekly Derivatives 1% -% 2 Stocks -% -7% 1 Week Monthly Derivatives 1% -% -7 Stocks 7-1% 1-1% 1 Month Global l Derivatives i % 2-% - stocks Month Quant Picks 1% 2-% -8 stocks 7-1% 1-1% Months Alpha Trader 1% 2-% 2- strategy % Month Volatility Insights 1% 2-% - Strategy 8-1% 1-1% 1-2 Month Arbitrage Opportunity % 2-% 2- Stocks > 2.% >2.% Event Based Short term Futures % 2-% 8-12 Stocks 1-% 2-% 1-2 days Positional Index Strategy % -% 2- Index calls days Stock option strategy % -% 2-8 Stocks - -% 1-2 days Daily Currency Future % -% % - Calls days Monthly Currency Futures % -% 2- Calls Month

12 Pankaj Pandey Head Research ICICIdirect.com Research Desk, ICICI Securities Limited, 1 st Floor, Akruti Trade Centre, Road No 7, MIDC Andheri (East) Mumbai 9 research@icicidirect.comcom 12

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