Evening Report-Jan 22

Rupee closed at 49.16/18 after giving up gains against the U.S. dollar as some banks covered short dollar positions and the stock market eased off from an early rally.Dollar demand from importers added to the downward pressure on the Indian unit.U.S. economic calendar will present event risk for the first time this week with housing start and jobless claims on tap. New construction is expected to have fallen to a new all time low of 605,000 from 625,000 in November. The continued deterioration of the housing market has beget the second round of banking woes and has forced the U.S. government to consider a comprehensive package for the sector. The promised action would spark risk aversion leading equity markets higher which would sink the dollar as traders sold off U.S. Treasuries. However, if jobless claims print above 500,000 as expected, it may remind traders of the economy’s current weakness and could weigh in sentiment and add dollar support. Euro would climb as high as 1.3076 before a industrial new orders record low print. Demand fell 26.2% on an annualized basis on the back of a 4.5^% decline over the month. Meanwhile French consumer spending fell 0.9% in December which was more than the -0.2% that was expected as rising unemployment has curbed domestic demand. The fundamental picture for the economic region continues to deteriorate which has increased expectations that the ECB will need to continue their current easing policy. As companies face declining demand and a lack of funding they have been forced to postpone new projects which will weigh in future growth and continue to drag on the regions economy. Despite the dimming prospects, the central bank signaled that they will most likely pause easing at their next policy meeting with a possible rate reduction in March. Pound has soared since falling to the lowest level against the dollar and a record low versus the Yen. After falling to as low as 1.3620 the Sterling shot up to test 1.4000 before finding resistance as typical retracement was fueled by the increase in risk appetite. The CBI manufacturing survey fell to -48 from -35 as new orders dropped 13 points. The expectations for further weakness in the sector have weighed the pound down to 1.3800. JPY rose to a record high against a basket of currencies as investors started speculating about global banking woes