FX Weekly Outlook

Biggest Movers for the day:

Major Gainers Major Losers

Monday, November 14, 2011

The major highlight of the last weeks trading action was the high profile political developments in Euro zone. Market sentiments oscillated between hope and despair on the back of the political developments in Italy and Greece. The initial cheer in the markets after the decision by Italian PM Silvio Berlusconi to step down faded in no time after he argued against the formation of a unity government. But the Italian PM buckled under intense global pressure and reversed his stance in favour of a unity government in Italy. By the end of the week, new governments headed by technocrats Mario Monti and Lucas Papademos were sworn in Italy and Greece respectively, ending weeks of political paralysis. Despite the apparent backing of all political parties, the new unity governments are expected to face tough political weather in the weeks ahead. In an early signal of the lack of firm political backing to the new government in Greece, opposition leader Antonio Samaras indicated that he wouldnt sign the agreement with EU to secure the release of the 8bn tranche of the bailout funds. It has to be noted that European Union has demanded a written consent of all political parties in Greece as a precondition for the release of the next tranche at the end of this month.

EUR

USD

Benchmark Interest Rates:

USD EUR JPY GBP CHF CAD AUD NZD

0-0.25% 1.25% 0-0.10% 0.50% 0.25% 1.00% 4.50% 3.00%

The market reaction to the formation of the new governments in Italy and Greece would be known today when Italy auctions bonds worth 4bn euros. During last week, the economy saw its borrowing costs zoom past 7% due to the intense political uncertainty in the country. Yesterday, Italian parliament also passed the reform measures demanded by the European Union which was a key condition set by Silvio Berlusconi to step down as the PM. It is now expected that markets would take some relief from these measures and Allen Baby demand a lesser borrowing cost from Italy in todays bond auctions. The focus of the forex market action in the week ahead would be on the performance of the new unity governments and the political backing to them. On the data front, the week has some important economic data including the EU and Germany GDP and US industrial production. The week also has the economic sentiments surveys including the key Zew Survey from EU.

Analyst, Global Currency Group allen.baby@sbi.co.in For any queries regarding currency products and quotes please feel free to call our corporate dealing desk on +9122-22891492-99

Euro has shown relatively high stability against the majors despite the high political uncertainty in the Euro zone. The currency is expected to remain relatively firm against the majors and trade in the range of 1.36-1.39 during the week. Economic data may not have a major impact on the markets during the week. Disclaimer: Although the information contained herein is believed to be reliable, State Bank of India makes no representation as to the accuracy or completeness of any information contained herein or otherwise provided by State Bank of India. The ultimate decision to proceed with any transaction rests solely with the Company. State Bank of India is not acting as the Company's advisor or agent. Therefore, prior to entering into any proposed transaction, the Company should determine, without reliance upon State Bank of India or its affiliates, the economic risks and merits, as well as the legal, tax and accounting characterizations and consequences, of the transaction, and independently determine that the company is able to assume these risks. This document and its contents are proprietary information and products of State Bank of India and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceeding.