MARKET PULSE – 01st February 2012
Currency market
USD/INR traded 49.30-49.80 (high of 49.74 and low of 49.33) before close at 49.45; in the process fell short of set sell zone of April 2012 dollars at 50.85-51.00 (high of 50.78) and missed set buy zone of February 2012 dollars at 49.65-49.50 (low of 49.67). No change in view of looking for consolidation at 49.25-49.75 with overshoot limited to 49-50. The strategy to sell April 2012 dollars on spot move into the higher end (49.75-50.00) and to buy February 2012 dollars on move into lower end (49.25-49.00) stays valid. The risk of extension of rupee gains beyond 49.20 into 48.60 is valid given the strong rupee bullish cues and it is expected that RBI will shift its stance to USD buy mode to provide short term consolidation at 49-50 and to pump in rupees into the system with draw down from LAF counter close to Rs.1.5 Trillion despite 50 bps CRR cut. It is also important for USD Index to hold above 78.20 to prevent extended rupee gains beyond 49.20 into 48.60.
EUR/USD rally failed ahead of set sell window of 1.3225-1.3275 (high of 1.3213) for push back into the support zone/buy window of 1.3075-1.3025 (low of 1.3041). We have already seen end-to-end moves twice in two trading days. Now, EUR/USD looks set for conclusive break below 1.3050 for extension into 1.2925 followed by move into the lower end of set near term range of 1.2750-1.3250. For now, let us watch 1.2925-1.3150 with bias into the lower end. In the meanwhile, USD/JPY is under pressure for extended weakness into 75.50 to bring in BOJ. EUR/JPY move below 100 should also provide support to USD/JPY. Let us continue to watch formation of base around 75.50 for sharp reversal into 77.25-78.25.
Interest rate market
10Y bond moved into set buy zone of 8.32-8.34% (high of 8.33%) for sharp reversal below 8.25% (low of 8.23%) before close of day at 8.27%. Strategic investors can hold on to their purchases at 8.40% and 8.33% with trail stop at 8.31% for 8.22-8.20%. For today, let us look for consolidation at 8.20-8.30% with overshoot either-way to attract.
OIS rate steady with 1Y around 8.15% for close at 8.16% and 5Y stayed firm for move from 7.25% to 7.31% before close at 7.31%. No change in view for consolidation at 8.10-8.20% (1Y) and 7.25-7.35% (5Y) with test/break either-way not expected to sustain. We are already received in 5Y at 7.35-7.40% and it is good to add on rally into 7.35% (if seen) for gradual reversal into 7.25-7.20%. Let us stay aside on 1Y tenor as it is not good risk-reward trade on either side despite limited upside; carry cost of over 1% for extended period of time does not provide cover for the reward.
FX premium is steady with downward bias despite strong interest rate play and exchange rate play driven by lower USD/INR for close at 8.65% in 3M and 5.85% in 12M. Let us continue to watch 8.25-8.75% in 3M and 5.65-6.0% in 12M. Strategy is to receive 3M premium at 8.85-9.0% for ALM play and receive 12M at 6.0-6.15% (with stop at 6.25%) and pay 12M at 5.65-5.50% (with stop at 5.40%).
Commodity market
Gold in consolidation mode at 1730-1745 and is looking good for extension into 1760 and prepare momentum for meeting the near term objective at 1790-1800. For today, we continue to watch sideways trading mode at 1730-1760 allowing extension into 1710-1700 before reversal. Fleet footed traders can play end-to-end of this move with tight stop on break thereof. Strategic investors can look to buy one-third at 1730; add next lot at 1710 and the final one at 1690 with stop below 1680. The rationale is not to miss out on the current bullish undercurrent for 1790-1800.
NYMEX crude continues to trade within the set buy zone of 98.50-97.50 (low of 97.86) and sell zone of 100.50-101.50 (high of 101.29). We have already seen end-to-end moves many times within this range of 97.50-101.50. Let us continue to track this range and stay neutral on directional break-out which should stay within 95-103.
Equity market
NIFTY rallied above 5150 (from low of 5120) but fell short of 5220 (high of 5215) before close at 5199. Given the tight money market conditions and lack of clarity on global stock markets, it is prudent to stay neutral at this stage. Having said this, there is no case for sustainability of weakness below 5050 but not very confident of suggesting gains beyond 5220, and if any will be considered good to exit “long” trades. It would be in order to allow consolidation within 4955-5220 for some more time before extending the underlying bull rally into 5400-5500. For today, let us watch 5120-5220 with extension limited to 5050-5250. Strategic investors (having exited 4550 at 5150 with 600 pip profit) can now stay aside to buy in three lots around 5050/4950/4875 (with stop below 4850). Fleet footed traders can buy at 5150-5125 (with stop below 5100) and sell at 5225-5250 (with stop above 5275).
Have a great day...................Moses Harding
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