Currencies end week on a flat note

In the last week, major currencies closed almost on a flat note. The US Dollar Index (DX) traded with a negative bias in the last week but closed flat. The Indian Rupee (INR) depreciated marginally by 0.3% to close at 46.94 and the Euro fell slightly by 0.1%. Mildly bullish sentiments in the last week coupled with the European banks stress test results kept sharp gains in the currencies under check. Economic data out of the US in the last week continued to come on the negative side.

In the initial part of the week, equity markets traded on a mixed note awaiting the European banks stress test results. However, the results of the tests came in against expectations as 92% banks passed the tests. On the back of this, sentiment turned bullish by the end of the week as the stress tests data showed that the European banking scenario is not as bleak as expected.

The INR depreciated to a level of 47.41 in the last week as a weak start on the equities front in the beginning of the week restricted gains in the currency. Week-on-week too, the currency weakened as sentiments remained largely mixed. FII inflows in India in the month of July totaled Rs.10,126cr. In the month of June, FIIs bought equities worth Rs.10,508cr and year-to-date inflows stand at Rs.41,203cr.

Economic Update

·         The demand for the US financial assets also declined in May. Global demand for the financial assets totaled $35.4 billion in May as against the previous figures of $81.5 billion in April.

·         In the last week Ben Bernanke in his testimony before the Senate Banking Committee said that US has very little probability of being affected by deflation. However, he also added the Federal Reserve has possible tools to prevent it. Moreover, the Fed chairman also said that the employment scenario remains a major concern for the US.

·         Unemployment claims in the US increased by 37,000 to 464,000 in the last week.

·         Existing home sales increased by 5.37 million in June as against forecasts of 5.18 million.

·         Current account deficit in the Euro area widened in the month of May. The European central bank said that deficit increased by 5.8 billion Euros in May from 5.6 billion in April. Markets had expected the deficit to narrow down to 3 billion Euros.

·         The Euro zone manufacturing PMI increased to 56.5 in July from 55.6 in June. Markets had expected the index to decline to 55.2. The Services PMI also increased to 56.0 in July as against 55.5 in the earlier month.

Fundamental Outlook

The Reserve Bank of India (RBI) is expected to give its monetary policy review on 27th July, 2010. The central bank is expected to tighten monetary policy by raising interest rates by another 25 basis points. RBI has lifted rates three times since March by 25 basis points each. In this week we expect the INR to appreciate as higher risk appetite coupled with continuing inflows in the country will help support gains in the currency. Weakness in the DX is also positive for the INR. We expect the INR to trade in the range of 46.75 - 47.60 in this week with an appreciation bias.

Refined Soybean Oil

Global Vegetable Oil Supply and Distribution at a Glance:
Current Scenario of Global Major Vegetable Oil Supply and Distribution: World production of vegetable oil for 2010-11 is projected at 146.64 million tonnes. Indonesia accounts for 19.30% of world vegetable oil production. While Malaysia 14.26%, China 12.55%, EU 11.40% , USA 6.58%, Argentina 6.15%and India accounts for 4.85% only. World vegetable imports for 2010-11 are projected at 58.36 million tonnes. China accounts for 18.30% and India accounts for 17.60% of world vegetable oil import. China, EU and India consumes about 50% of total world domestic consumption of vegetable oils.

Current Scenario of Global Soybean Oil Supply and Distribution: World production of soybean oil for 2010-11 is projected at 39.964 million tonnes. China accounts for 23% of world soybean oil production. While USA 21%, Argentina 19%, Brazil 16%, EU 6% and India accounts for 3% only. World soybean oil imports for 2010-11 are projected at 8.852 million tonnes. China accounts for 24% of world soybean oil import and India accounts for 14% only.
World Palm Oil Imports Scenario: World Palm oil imports for 2010-11 are projected at 37.377 million tonnes. India accounts for 22% of world palm oil import, while China 19%, EU 14% and Pakistan accounts for 6% only.

India's Current Scenario of Edible Oil Production: Domestic vegetable oil production was 63.7 lakh tones in 2009-10 and it is projected at 70.9 lakh tones for the year 2010-11, which is not sufficient to meet domestic requirement. India needs to import more than 50% vegetable oil to meet their demand. Soybean, mustard and cotton seed oil are major contributor in total production, which accounts for about 60% of total domestic production.

Weekly Market Commentary of Refined Soy Oil: NCDEX August soybean oil prices rallied in the last week and breached its contract high of Rs 460/10 kg on account of firm global market and finally it managed close at Rs 467/10 kg with a gain of about 3% as compared to previous week's close of Rs 454/10 kg. Refined soy oil futures at Chicago Board of Trade (CBOT) surged due to hot and dry weather, which may impact on yield. Weakness in the US dollar also added bullish tone. Domestic edible oil demand improved slightly on account of rainy season. Edible oil import declined in the month of June also favored the bulls in short term. As per Solvent Extractors Association (SEA) data, the import of vegetable oils has slumped by 6% on a month on month basis in June 2010 to 7.32 lakh tonnes. The overall import of vegetable oils during November 2009 to June 2010 is reported at 55.81 lakh tonnes as compared to 58.23 lakh tones during the same period last year, down by 4%. Crude palm oil futures at Bursa Malaysia Derivative Exchange sparked in tandem with huge gains in soy oil futures at CBOT and better export figures of Palm Oil in the Malaysia during the period of July 1-15 as compared to previous month during the same period. As per SGS (Cargo Surveyor, Malaysia) Malaysia's palm oil exports during the period of July 1-15 was at 668,573 metric tonnes, up 11 % as compared to previous month during the same period. As per latest WASDE monthly Oilseed supply & demand report, Rapeseed production is sharply reduced for Canada due to lower harvested area, this also favored to bulls.

The USDA's weekly export sales report released on July 15, 2010, revealed that the net export sales for soybean oil sales were 13,000 tonnes for the current marketing year and 40,000 tonnes for next year for a total of 53,000 tonnes. Sales need to average 9,000 tonnes each week to reach the USDA forecast.

Fundamentals and Technical Outlook: In the coming week, prices are expected to move slightly higher on firm global market sentiments as we are major importer of edible oils. The cost of importing will increase, thereby raising the domestic prices. However, in the long term, huge stock of imported edible oil and existing better carry over stock of oilseeds this year as compared to last year will weigh on the prices. Also, poor export demand of domestic soy meal are in favour of bears.

NCDEX August contract shall find a strong support at 455/450 levels and resistance at 475/480 levels for the coming week.

Technical Indicators: On the daily charts, prices closed above its 10 Day EMA and its 20 Day EMA and MACD-Histogram is in positive territory, which indicates bullish market sentiments. 14-Day RSI is at 82.38, which is in overbought zone.