SEBI Certified Research Analyst Provides Currency Outlook

SEBI Certified – Research Analyst www.choiceindia.com
Currency Monthly
9th December 2016

SEBI Registered – Research Analyst www.choiceindia.com * Please Refer Disclaimer on Website
Currency Monthly9th December 2016
Outlook
Indian Rupee: Indian Rupee is estimated to depreciate for the month of December on account of high probability
of rate hike in Dec’16 US Federal Reserve meeting along with Trump’s tall claims in his post winning speech at the
US Presidency elections. Further, there have been some serious foreign outflows from emerging markets which has
kept pressure on the currency. On the domestic front, Modi government’s attempt of demonetize Indian Rupee in
order to remove corruption and terrorism has caused some inconvenience to the general public now but long term
looks good. Moreover, above factors has seen outflow of foreign funds of almost $3 billion from domestic markets.
However, sharp downside in the currency will be cushioned as a result of central bank intervention at the higher
levels along with RBI surprising the markets by maintaining its status quo in it’s monetary policy meeting. Estimates
of favorable industrial production and inflation data will restrict sharp negative movement in the currency. For the
month of December, Indian Rupee is expected in range of 66.25-69.0.
Dollar Index: The US Dollar Index is expected to be on a positive side in upcoming month on estimates of hike in
interest rates by the Federal Reserve in its Dec’16 meeting. Further, optimistic speech by the new elected US
President Donald Trump post his win in the election led to upside in the currency. Moreover, robust manufacturing
and non-manufacturing data has pushed retail sales up, employment data like ADP and Non-Farm employment has
been favorable along with upside in the economic growth of the country which has led to positive movement in the
currency. For the next month, Dollar Index will be in the range of 98.0-105.
Euro: The Euro is forecasted to recover from its low in the coming month due to optimistic manufacturing and
non-manufacturing data from two major countries like Germany and France after surge in new order intakes, which
companies generally linked to a combination of better marketing initiatives and strong demand from foreign
markets. Additionally, rise in region’s inflation by 0.5 percent in Oct’16 from 0.4 percent in Sep’16 coupled with
unemployment rate of the Euro region falling to seven year low at 10 percent will lead to upside movement in the
currency. Moreover, the ECB President has warned that Brexit would be tougher for Britain than Euro-zone and
wants clarity over the negotiation process which will keep the currency in positive territory. For the month of
December, Euro is expected in the range of 1.020 to 1.120.
Sterling Pound: The Sterling Pound is anticipated to be on a negative note in next month due to expectations of
worst hit to the economy post Brexit. Further, strength in the dollar index post the hike in interest rates will keep
pressure on the currency. However, sharp downside in the currency will be cushioned as a result of manufacturing,
service and construction PMI data because all have surged by more than the expectations. Unemployment rate has
plunged to 4.8 percent in Oct’16; lower till now which will prevent sharp negative movement in the currency. In the
coming month, the Cable is estimated in the range of 1.19 to 1.34.
Japanese Yen: The Japanese Yen is expected to volatile for the month of December due to rise in risk aversion in
global market sentiments which will lead to increase in demand for the low yielding currency. While on the other
hand, inflation rate, which is currently at -0.4 percent, still lingers below the 2 percent targeted levels. Reason
behind the same could be attributed to anemic demand from global and domestic to some extent will keep
pressure on the currency. For the month of December, Japanese Yen is expected in the range of 107 to 121.

News and Developments
Rupee demonetization keeps the country on
toes
On 8th November’16, the Government of India
announced its plan to demonetizate 500 and 1000
rupee notes in a bid to reduce spending and tame
inflation. According to Moody’s, this move would be
beneficial for the Indian government and banks but
implementation challenges of this “unprecedented
move“ will disrupt economic activity and weigh on
GDP growth for a few quarters. The move will have
credit implications for every sector of the economy
as the decline in economic activity will depress
corporate sales cash flows.
Euro-Zone suffers due to Italian Constitutional
Referendum
The Prime Minister of Italy Matteo Renzi wanted to
reduce the powers of the Senate and give more to
the deputies which prompted him to call for a
Referendum on 4th December’16. The Italians were
given a choice to make changes in the Italian
Constitution so as to keep it in line with the modern
constitutional reforms. However, the people of Italy
have voted ‘No to change’ which will result into
Renzi resigning as promised thereby opening doors
to a new government i.e. Five Star Movement. Five
Star Movement is a Euro skeptic party who has
openly said of wanting an exit from the Euro-zone.
European Central Bank President Mario Draghi
key takeaways
Global economy is facing significant political and
economic uncertainties. 2016 has showed how
resilient Euro area’s economy is to this global
uncertainty. ECB’s monetary policy has led benefitted
Euro-zone’s economy and will continue to do so.
The committee is in position to address bond
scarcity. Flexible programs to maintain monetary
accommodation. Expectation of some easing
option’s in Dec’16 meeting to bring inflation to
target. Brexit will be tougher for UK than for Euro-
zone.
America recounting of votes leads to
uncertainty in the markets
Green Party's presidential candidate Jill Stein has
carried out a campaign to recount the votes cast
in three states in the November 8 presidential
election. Mr Jill Stein launched a fundraiser to
finance vote recounts in Wisconsin, Pennsylvania
and Michigan, all of which had a history of backing
Democrats for president that were narrowly and
unexpectedly won by Republican Donald Trump
over Democrat Hillary Clinton.
A federal judge ordered Michigan to begin its
presidential recount on 5th December’16 that
could make it more likely the state will complete
the count ahead of a December’16 deadline. A
vote recount has already begun on 1st December
’16 in Wisconsin while Pennsylvania is waiting for
Federal Courts approval for the same.
President of the Federal Reserve Bank of San
Francisco, John C. Williams Statement
Big slowdown in global trade crimped in part by
decreased China growth. US economy's better
performance relative to advanced peers amplifies
Chinese investment. America’s economy driven
primarily domestically and not because of China.
President of the Federal Reserve Bank of
Richmond, Jeffrey M. Lacker Speech
Hopes that the new government doesn’t change
independence of Fed policy. Federal Reserve will take
the new trade policy into account. Loose fiscal policy
would increase the chances for rate increases.

The above chart shows that Indian Rupee depreciated
in the month of November by more than 2 percent
and currency had depreciated around 0.25 percent in
previous month, while appreciation was seen by 0.38
percent and 0.53 percent in August and September
respectively.
The currency came under pressure and touched an all
time low of 68.8625 after speech made by the newly
elect US President along with high estimates of hike in
the US interest rates in Dec’16 meeting which led to
strength in the dollar index.
The currency was trading on a negative side as a result
of government’s decision to withdraw Rs.1,000 and
Rs.500 notes. This move was taken mainly to cut the
spending and fight inflation which had chances of rate
cut by RBI in its meeting on 7th Dec’16.
Moreover, this factor led to huge outflows of foreign
funds from India which affected the Indian Rupee.
Foreign institutional investors have been the net
sellers of $1.5 billion in bonds and $1.4 billion in
equity market since Trumps selection and Indian
Rupee demonetization. Indian Rupee touched a low
of 68.8625 and high of 66.3362 in the month of
November. While in the month of October, it touched
a low of 66.9575.
However, sharp downside in the currency was
cushioned due to selling of dollars by exporters at
higher levels coupled with decline in CPI and WPI
inflation of the economy.
RBI kept key rates unchanged in its fifth Bi-
Monthly Monetary Policy
The Reserve Bank of India in its fifth Bi-Monthly
Monetary Policy review kept its benchmark repo rate
unchanged at 6.25 percent. Other important rates
were also kept at the same levels like the Reverse
Repo Rate at 5.75 percent and both marginal standing
facility and bank rate stood unadjusted at 6.75
percent. Markets were expecting a rate cut of 25 basis
points as India’s inflation rate eased more than the
expected levels for the third consecutive month in
October’16. However, the central bank decided to wait
and watch for sometime then take the action.
The six member monetary policy committee was of the
opinion that the recent Rupee Demonetization would
temporary push down inflation but there is a high
possibility of rising in future, all thanks to
implementation of 7th pay commission and GST bill.
Moreover, the recent agreement by the OPEC
members to cut output production by 1.2 billion
barrels per-day may firm up crude oil prices in the
coming months. This will further intensify problems for
India’s inflation rate since it is one of the prime
importers of crude oil.
Reserve Bank of India is thinking of ways to curb the
excess liquidity. It has asked schedule banks to
maintain 100 percent Cash Reserve Ratio for the
deposits received between 16th Sep’16 to 11th Nov’16.
However, banks hate CRR as their money is kept idle.
Hence, the Reserve bank of India has come up with
Market Stabilization Scheme (MSS) where banks can
suck excess liquidity from the system with an
opportunity of earning money on that.
According to the RBI governor, global growth is
improving as industrial activities resume in advanced
economies. Donald Trump’s victory in the US
Presidency Elections along with higher prospect of rate
hike in the US has led to huge volatility in international
financial markets. Investors are fleeing to US markets
to take the advantage of higher interest rates which is
affecting emerging market economies. Moreover,
political instability in the Euro area will add to the
woes. However, he feels that things will slowly
improvise as world trade is showing sign of
stabilization.
67.45
66.65
67.97
67.27
66.91
66.74
67.18
66.37
66.97
66.86
66.44
67.95
68.75
68.21
66.3
66.8
67.3
67.8
68.3
68.8
Indian Rupee (USD/INR)

The above chart shows that Euro came under
pressure after declining in last month and dropped
by more than 3 percent in the month of November.
The currency depreciated on account of strength in
the dollar index.
Euro declined after European Central Bank’s vice-
president warned that under Trump’s rule, Euro-
zone economy could be exposed to rising
protectionism and political risk, suggested that the
bank is ready to agree to a fresh round of
controversial bond purchases to bolster economic
recovery.
The currency touched a high of 1.13 and low of
1.0518 in the month of November. Further,
downside in the currency was seen after European
Union cut its Euro-zone growth forecast for next
year; pointing to rising global risks for the 19-
country single currency.
Moreover, the Italians have voted for ‘no change’ in
the constitutional referendum which clearly means
resignation of Italian Prime Minister Matteo Renzi
as promised. ECB President had stated that the
committee was in position to address bond scarcity
and has flexible programs to maintain monetary
accommodation which kept the currency in
negative territory.
The US Dollar Index surged by more than 3 percent
in November as shown in the above chart. The
currency rose to high of 102.05 and low of 95.885
in the last month.
The currency rose due to estimates of hike in
interest rates by the Federal Reserve in Dec’16
meeting. Further, promises made by the newly
elected US President led to upside movement in
the DX.
US newly elected President Mr.Donald Trump has
promised to increase government spending, cut
taxes and ease the financial regulations. This factor
led to expectations that his policies could seen a
recovery in the global economy which is little bit
fragile at this movement. Even the US Federal
Reserve Chairwoman in her recent speech stated
that America would get a rate hike pretty soon and
delaying might cause economic and market
disruptions which kept gains in the currency.
Additionally, host of economic data sets from the
country, led to positive movement in the currency.
Right from the labor market sector; like ADP, NFP
and unemployment rate came on a good note. Also
GDP and consumer confidence data along with
manufacturing and housing data showed signs that
consumers are confident about the economy and
leading to more spending.
95.46
93.61
96.54
97.20
95.06
94.16
96.11
98.70
97.40
101.21
100.93
101.40
93.5
94.5
95.5
96.5
97.5
98.5
99.5
100.5
101.5
102.5
US Dollar Index (DX)
1.115
1.140
1.103
1.100
1.122
1.135
1.115
1.121
1.088
1.114
1.063 1.056
1.05
1.06
1.07
1.08
1.09
1.10
1.11
1.12
1.13
1.14
Euro

The Japanese Yen depreciated by more than 9
percent in November after declining around 3.4
percent in Oct’16 and appreciated around 2
percent in the month of Sept’16 respectively. The
currency depreciated on account of rise in risk
appetite in global market sentiments which led to
decline in demand for the low yielding currency.
The currency declined as expectations that Trump
policy stance from protectionism and fiscal
expansion will boost inflation have been driving the
DX up in turn keeping the safe-haven Yen
pressurized.
From the domestic front, the Bank of Japan (BoJ)
Governor commented on Japan’s inflation rate
failing to hit its target levels of 2 percent. He also
mentioned that the US economy is the largest one
in the world and has a large influence over other
economies.
Hence, if Trump comes out with some changes it
will affect the entire world. However, he is positive
that the new policies will be good for Japan.
The central bank surprisingly announced its first
special bond-buying operation to curb growth in
bond yields. The governor mentioned about not
standing idly by as Japanese government bond
yields jump in line.
The Sterling Pound recovered from its low and
appreciated by more than 2 percent in the month
of November. The currency rose after the newly
elected US president Donald Trump led the
markets to think that a Trump presidency will
actually benefit US economic growth. This could
mean a boon for UK’s trades. After the Brexit vote,
the prospect of a UK-US trade agreement would
be a major boost to the British economy. This was
the reason why Sterling Pound jumped in Nov’16
against its peers which were on declining trend.
Moreover, the new Chancellor pledged to increase
spending on the UK's infrastructure and research
and development programs. This statement saw
an additional spending on high-value investments,
specifically in infrastructure and innovation.
Britain’s productivity growth has been weak since
economic downturn with workers in the G7, being
a great deal more productive than their UK
counterparts.
Hence, the new Chancellor believes that raising
productivity is essential for the high-wage, high
skill economy that will deliver higher living
standards for working people.
However, sharp gains were restricted as the Labor
Party feels that there is no clear plan for Brexit
negotiations. Theresa May also commented on
Bank of England’s near-zero rates and bond-buying
program hurting domestic savers. They believe
that just like the US Fed’s there will be a question
on BoE’s independence on policy decision.
1.442
1.488
1.323
1.293
1.336
1.292
1.344
1.262
1.212
1.260 1.273
1.18
1.23
1.28
1.33
1.38
1.43
1.48
Sterling Pound
109.54
106.53
104.16
102.22
100.77
106.89
100.89
100.31
103.92
100.32
103.95
105.29
103.3
109.2
110.91
113.33
114.46
99
101
103
105
107
109
111
113
115
Japanese Yen

SEBI Certified – Research Analyst www.choiceindia.com
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Choice Broking or any of its subsidiaries or associates or employees shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the
information contained in this recommendation or any action taken on basis of this information. Technical analysis studies market psychology, price patterns and volume levels. It is used to forecast
future price and market movements. Technical analysis is complementary to fundamental analysis and news sources. The recommendations issued herewith might be contrary to recommendations
issued by Choice Broking in the company research undertaken as the recommendations stated in this report is derived purely from technical analysis. Choice Broking has based this document on
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SEBI Certified – Research Analyst www.choiceindia.comSEBI Registered – Research Analyst www.choiceindia.com * Please Refer Disclaimer on Website
www.choiceindia.comcustomercare@choiceindia.com
Anish Vyas
Digitally signed by Anish Vyas
DN: cn=Anish Vyas, o=Choice Merchandise
Broking Pvt. Ltd, ou=Sr. Research Associate,
email=anish.vyas@choiceindia.com, c=IN
Date: 2016.12.09 13:49:52 +05'30'

SEBI Certified Research Analyst Provides Currency Outlook

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