Evening Report-jan 16.

Rupee was firm but moved in a narrow range against the U.S. unit as dollar sales from banks were offset by demand from importers amid thin volume trade. Non-deliverable forward dollar/rupee rates were down today tracking the greenback's fall in the spot market here. Stock Market climbed further, to be up by 3 percent on the day, raising hopes of some capital inflows, while a weaker dollar overseas also helped sentiment. U.S. consumer prices are expected to have realized its first annualized drop . Falling oil prices have been the main driver of lower prices, but the lack of consumer demand has also forced retailers to slash prices in order to lure customers. Job losses in excess of a 1 million over the last two months of the year have led to consumer’s retrenching which may continue to add pressure to prices. The decline may raise concerns over corporate profits which have been a main source of recent risk aversion. If that sentiment continues then we may see continued dollar strength. Additionally, the U of M consumer confidence reading is expected to decline to 59.0 from 60.1 which will add to future domestic growth concerns. The increase in demand for risky assets will lead to the selling of U.S. Treasury’s and most likely dollar weakness on the day. Euro reaching as high as 1.3285 as it continued to find support following ECB President Trichet’s signaling that the central bank will most likely pause their current easing policy in February. The Euro traded sideways since running into resistance as bullish momentum was derailed by the Euro –Zone trade balance report showing that exports fell the most in eight years. The region reported a deficit of 7.0 billion for November after a surplus of 1.0 billion the month prior. The region saw demand fall from three of the world’s largest economies as exports to the U.S., Japan and the U.K. fell. Although the Euro may continue to find support with the prospect of a rate cut in February, the fact that the region’s sinking deeper into a recession will limit upside potential. . Pound continues to remain range bound which will make technical factors more significant in future price action. We may see fundamental come back into play next week with CPI, BoE minutes, and employment data on the economic docket. Markets are also expecting the BoE to slow their easing policy with only 28 bps of rate cuts anticipated. Therefore we may have seen the currency put in a bottom which could lead to more upside potential. yen fell the most on speculation stock gains and measures to stabilize the U.S. financial system will prompt investors to sell the Japanese currency and buy higher-yielding assets