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There is a strong likelihood of profit-taking this week on the benchmarks. The downside, however, would remain 2.5-3 per cent.
There is worry on the domestic liquidity front with the RBI opening another window for liquidity adjustment facility from February 10 onwards.
The 10 year G-Sec yield closed last week at 8.22 per cent. This week will see data dependent movement with January's inflation numbers expected to be in, on Valentine's Day.
There is fear that borrowing might just get dearer with the outstanding government borrowings as on February 3 close to Rs 30 lakh crore.
This week, the rupee can appreciate a maximum of three per cent from last week's close versus the US $ subject to healthy FII inflows. This, however, would be offset to some extent by those waiting to take long positions on the USD.
On the global front, Greece continues to remain a pain point for the Euro zone. The Greek cabinet accepted another set of austerity measures in return for the second bailout package of EUR 130 billion.
If these measures do not pass muster in the Greek parliament, liquidity situation would worsen leading to a rise in unemployment.
Last week saw rating agency Standard & Poor's cut the long term credit rating (banking industry country risk assessment- BICRA) of 34 Italian from group 3 to Group 4.
This has come a month after the country's sovereign rating was cut by two notches, from A to BBB+ in January.
Though currency market experts have a bearish view on the Euro versus the $, a real bearish trend gets confirmed only if it breaches $1.2850 level, which is highly unlikely.
Gold prices are expected to be subdued this week but not expected to go below $1,650 to an ounce.
Nymex crude futures prices are likely to be range bound between $95 and $100 to a barrel this week.
Expect a softening of crude prices only if it breaches US$ 95 to a barrel.
US treasury will oscillate between 1.88 per cent and 2.08 per cent this week. A lot hinges on what US President Barack Obama announces in his budget speech on Monday especially with regard to hike in taxes and measures to curb fiscal deficit by 2013.
This week will see important economic data being released in large numbers from across the world.
On Tuesday, Bank of Japan's rate decision is expected to remain at 0.1 per cent while the ZEW economic sentiment survey is forecast at minus 15 up from the last minus 21.1.
US retail sales have been forecast to grow at 0.7 per cent up from the last recorded 0.1 per cent.
Jobless claims for January in UK is expected to increase to 3000 up from the last 1200 on Wednesday while Euro zone's quarterly GDP number is forecast at minus 0.4 per cent on a sequential basis (0.2 per cent).
The US Fed releases the minutes of the Federal Open Market Committee (FOMC) meeting of January 24 –25 on Wednesday.
Finally, inflation (consumer price index) in the US is forecast at 2.8 per cent down from the last recorded three per cent on Friday.
raghavendrarao.k@thehindu.co.in
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