Evening Report-jul 21

The Indian rupee dropped as a lower stock market and the dollar's rebound against major currencies prompted investors to take profits a day after it posted its biggest one-day rise in two months.Capital flows into, and out of, the stock market are a key driver for the rupee.Dollar rose ahead of Federal Reserve Chairman Ben Bernanke's congressional testimony.The dollar has found support overnight as markets are anticipating that Fed Chairman Ben Bernanke will outline the central bank’s plan to tighten policy in order to prevent future inflation risks when the economy returns to growth. In a Wall St Journal piece today he talked about the need to tighten policy which triggered the volatility but was clear that an accommodative policy was the course for the foreseeable future. Therefore, we could see markets disappointed in his comments leading to dollar weakness. The economic calendar will present some event risk on the form of Chicago Fed national activity index which is expected to decline to -2.3 from -1.3. The slow down in activity could weigh on the outlook for growth especially if there is weak earnings from clue chip names like Caterpillar and Dupont. Event risk could come from the BoC rate decision, where the central bank is expected to keep rates on hold at 0.25% but could speak about their plans for quantitative easing.The Euro has traded sideways stuck in the range of 1.4190-1.4250 as dollar support and lingering risk appetite offset each other. An empty economic calendar has also contributed to the lack of volatility which we could see pick up as we proceed through the week with the PMI and German IFO readings on tap. The Swiss trade balance report did cross the wires showing the country’s surplus narrowing to 1.57B from 2.0B as exports declined 2.6%. European demand has continued to remain weak and is limiting growth for all of Europe. Therefore, the ECB may be forced to remain on hold despite the recent rhetoric from central banks on how to exit their current quantitative easing policies.Sterling has remained under pressure during overnight trading despite European equity markets higher for a seventh day. We are seeing profit taking ahead of testimony from Fed Chairman Ben Bernanke which could be potentially market moving today with a virtually empty economic calendar. The U.K. public finance report which showed the budget deficit rising to 13.0 billion added to the prevailing bearish sentiment sending.Bullish comments from Bank of England Deputy Governor for Monetary Policy Charlie Bean failed to reverse sentiment. The MPC member stated that the central bank is aiming to keep its benchmark interest rate at its record low level for as short a period as possible. He would go on to further state that he sees that the U.K. economy has bottomed. However, businesses continue to remain cautious which could limit the pace of a recovery. Japanese Yen lost ground against dollar as global sentiment turns against the greenback, the Bank of Japan board members all agreed that the Japanese economy had stopped worsening, minutes from monetary policy meeting revealed Moreover, they agreed that economy was likely to show clear signs of leveling out over time, in line with their projections made in April.