2011

CURRENCY SPECIAL REPORT

USDINR Report

30th August2011

Fairwealth Commodities Pvt. Ltd.

CURRENCY SPECIAL REPORT

USDINR Report

KEY DATA Current Price (Rs) 46.1500 BUY 45.8000-46.2000 All time high 52.3375 achieved in current contract(Rs) Medium Term low 44.0925 touched (Rs) Target 47.0000-47.5000 Stop Loss 45.4000

Present Scenario S&PcutofU.S.ratingbyonenotchdentthemarket sentiments. Goldprovesasasafehavenasitralliedto$1800. DollarweakensontheotherhandGBP,JPYandEURO advances. China holds $1.6 trillion of the U.S Treasuries as of May. ECBboughtItalianandSpanishgovernmentbonds. DebtconcerninEuroZoneandU.S. PolicyerrorsinU.SandEurope. Eurozoneproblempersists The recent bad U.S Economic data thereby making U.S.economyslowdown. Growth rate concerns are likely to make situation dentmore. Thepaceoftherecoveryhasprovendisappointingso far. Future Scenario Fed may signal additional measures to stimulate the economy by beginning of the third round of QuantitativeEasing. Theglobalmarketsarelikelytoremainsubdued. InvestmentsinsafehavensuchasGold,USDandU.S Treasurieswillcontinue,ifsituationworsens. AccordingtheAnalysts,thereareabout40%chances oftherecession. Slowdown in the economies will happen because of theInterestratecycle. Headwinds continue in the Europe thereby making theeconomyslowdown. FOMC next meeting on Sept 21 and 22 extended to fullydiscussadditionalstimulus. Recommendation WiththestrengtheningofUSDintermsofothercurrencies theoutlookfortheUSDINRisBullish.WerecommendaBUY rating with a target in a range of 47.000047.5000 with a timeframeofmediumterm.

NIFTY vs. DowJones Industrial Average

USD vs. DowJones Industrial Average

TanishaJollyResearchAnalyst Tanisha.jolly@fairwealth.in RishiMeherResearchAnalyst Rishi.meher@fairwealth.in RajPrasadResearchAnalyst

Raj.prasad@fairwealth.in

CU URRENCY SPECIAL REPORT

USDIN Report NR

US Dollar vs. Major Cu r urrencies (% change) 08 0 Aug 2011 29 Aug 2011

GBP 0.08 8% 1.39% EUR

1.65%

JPY

0.79 CAD 9%

CHF

8.09%

4.00% 2.00% 0.00%

2.00%

4.00%

6.00%

8.00% 10.00%

USeconomy yslowsdown n With slower U.S. growth investors h r h have been snapping up Treasuries.S Sincetheend dofprevious month,they yieldonthe benchmark 1 10year note has dropped 0.87 percentage point d to 2.06 perc cent as of lat yesterday from 2.93 percent. The te 30yearTrea asurybondra atesdropped d0.83fromtheprecious month to 3.4 from 4.25 If U.S. econ 42 5. nomic growth picked up h enough to g generate high inflation, those yields could look her s low. But if the economy entered a re ecession and disinflation hosebetscouldturnoutpr rofitably. prevailed,th Withtheeco onomicrecov veryshowing gsignsofstre ess,theFed on Aug. 9 p pledged to ke its bench eep hmark interes rate at a st recordlowa atleastthroughmid2013andsaiditis sprepared toemployp policytoolst topromotegrowth.Ithas sdecidedto keepthefed deralfundsrateat0to0.25%. As per the Fed FOM report "Indicators suggest a MC deterioration in overall labor marke conditions in recent n et s months, an the unemployment rate has m nd moved up. Household spending h has flattened out, inve d estment in nonresidenti ialstructures sisstillweak, ,andthehou usingsector remains de epressed. H However, bu usiness inve estment in equipment and software continues to expand. Temporary factors, including the d damping effe of higher food and ect r gpowerandspendingas energypricesonconsumerpurchasing well as supp chain dis ply sruptions ass sociated with the tragic h events in Ja apan, appear to account for only so r t ome of the recentweaknessinecono omicactivity." The U.S. Eco onomic data are depressi in numbe and are ing ers notexpected dtobegoodintheneart term.TheJob blessclaims numbers are expected t rise. ISM Manufacturing Index is e to deteriorating g TheFederal ReserveChairmanBenBe ernankeonA Aug262011 delivered a s safe speech o outlining the important re eforms that must take p place to ens sure a strong longterm US growth g potentialin thefuture.Themeetingis sextendedto oatwoday

CURRENCY SPECIAL REPORT

USDINR Report

meeting in September to discuss about the options for stimulatingthegrowthoftheeconomy. EuroDebtCrises The European Central Bank bought Italian and Spanish government bonds, G7 Seeks to Avert Collapse in World Confidence Group of Seven nations sought to head off a collapseininvestorconfidenceaftertheU.S.sovereignrating cutandaslumpinItalianandSpanishdebtintensifiedthreats totheglobaleconomy. Leaders put together a new rescue package for Greece and agreed to expand the powers of the current euro440 billion ($633 billion) euro zone rescue fund without increasing its size.SovereigndebtcrisesinEuropeancountrieslikeGreece, Portugal, Ireland and Spain can cause pessimism about Europeseconomic health.Greeceseeksanotherbailoutand henceFrancejoinedGermanyindemandsforrestructuringof Greeces debt. Spain reveled that it has hidden debt as many officials employed werent receiving their payments. PortugalandIrelandremainanissuewiththeEurozone. The credit rating agencies like Fitch and S&P have downgraded the credit rating for these economies. Standard &PoordowngradedItalysdebtratingtonegativefromstable toreflect its views oftheheightened downside risks inthegovernments debt reduction plan. Standard & Poors affirmed its A+ longterm andA1+ shortterm sovereign credit ratings onItaly. Thetransfer andconvertibility assessment remains atAAA. Fitch Rating downgraded Greeces debt saying TheB+ rating incorporates Fitchs expectation that substantial new money will be provided toGreecebytheEUandIMFandthatGreeksovereignbonds willnotbesubjecttoasoftrestructuringorreprofilingthat wouldtriggeracrediteventanddefaultratingfromFitch. The economic data by other European economies are also stalling including the major economies like France and Germany.

Country

United States Euro Area Japan China India

GDP Billion US$ 14256 12456 5068 4909 1296

GDP Growth 2.80% 0.30% 0.30% 9.80% 2.70%

Int Rate 0.25% 1.00% 0.00% 6.06% 8.00%

Inflation

Unemployment

2.10% 2.40% 0.00% 4.90% 9.50%

8.90% 9.90% 4.90% 4.10% 7.40%

Source: Trading Economies

CURRENCY SPECIAL REPORT

USDINR Report

Gold proves as a safe haven and is expected to make an alltime high.

Goldprovesasasafehaven On account of a breakdown in the fiscal policy makers and government handling of economic policies will continue to support the Gold prices and drive it to record high prices in thenearterm.Goldprovesasasafehavenfortheeconomies since the investors and the FX mangers seems to be diversifyingfromUSD.ThemiddleofAugustthroughtheend ofDecemberishistoricallyastrongbuyingperiodforgoldasa seriesoffestivalsinIndiatriggerjewelrypurchases. Chinaholds$1.16trillionofU.S.Treasuries ChinaisthebiggestforeignownerofTreasuries,holding$1.16 trillionofthesecuritiesasofMay,U.S.TreasuryDepartment datashow.PremierWenJiabaoispromotingtheuseofYuan in international trade and finance to reduce the countrys relianceonthedollar.Chinas$3.2trillionofforeignexchange reservesaretheworldslargest.Brazil,IndiaandRussiahave combinedholdingsofabout$1.1trillion. Indiastory
IndiasCurrentAccountDeficit

India reported a current Account deficit equivalent to 5.4 billion USD for Jan March 2011 compared with 12.8 billion USD in the corresponding period previous year as per RBI. India's merchandise trade deficit was USD 29.9 billion in the JanuaryMarchquarterasagainstUSD31.6billionyearago.
IndiasCapitalAccountSurplus

The capital account surplus stood at USD 7.4 billion in the March quarter compared with USD 15 billion a year ago and versus an upwardly revised USD 14 billion in the December quarter. Indias economy grew 7.7% in the June quarter, the manufacturing sector dropped to 7.7% in the June quarter than that of 9.3% in the same quarter previous fiscal. Industrialgrowthslowdownisaconcern.Amoredropinthe GDP is expected in the coming quarters. The corporate earnings in India have support from the low margins and strong balance sheets, but the companies are facing headwindsfromtheglobalturmoils.

CURRENCY SPECIAL REPORT

USDINR Report

Fundamental Outlook
In our view, the probability for announcing the stimulus package by the Federal Reserve Chairman in SeptembermeetingislikelytohappenontheSeptember21and22FOMCmeeting.Fedisconsideringstepsto fighthighunemploymentintheeconomy.TheonusforboostingthelongtermgrowthstoryinU.Sdependson the policy measure taken by the Congress. A weak raft of data has also raised the views of the analysts to expectanewrecessionto50percent.TheU.S.economygrewat1percentannualrateinthesecondquarter asperGovernmentannouncement.LookingontheEuropeside,thesovereigndebtcrisesprevailingallover the Europe is of high concern. The debt crisis in Europe has undercut the recovery in Europe. The global economyisfacingrecessionturmoilsandtheeconomiesarerecoveringatzeropacegrowth.TheEmerging markets interest rate cycle is expected to slowdown. Hence in our opinion, investors are going to head towardssafehaveninvestmentwhichincludesGold,USDandU.S.Treasuries.WearebullishonUSDINRand expectingittorallyforatargetof47.000047.5000foramediumtermtimeframe.

Technical Outlook for USDINR

WesawthebreakoutinUSDINRafewdaysbackabove44.7000levelsandtherallycontinuedtothecurrent level of 46.0000. The major resistance was there at 45.5000 but USDINR has successfully breached that level. Next level on the charts in the coming few days is 47.0000, before that some consolidation is expected.Above46.3000,USDINRisexpectedtopickthemomentumforthetargetlevels.

CURRENCY SPECIAL REPORT

USDINR Report

Conclusion
Giventhecurrentconditionsprevailinginthemarkets,wearebearishontheinternationalmarketsandexpect theUSDtomoveinupwardrange.WerecommendabuyratingonUSDINRatpricerangeof45.800046.2000 withatargetof47.000047.5000andastoplossof45.4000.

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