MARKET PULSE - 03 FEBRUARY 2012

MARKET PULSE – 03 February 2012

USD/INR:

As expected weak USD Index (fall from above 79.50 into 78.50) drove USD/INR below strong support at 49.20 (low of 48.95) before getting into consolidation act at 49.10-49.25 for close of day at 49.16. No change in view of looking for formation of base at 48.85-48.60 and revert for near term consolidation at 49-50. For today, let us watch 49.00-49.25 with overshoot limited to 48.85-49.40. It is considered good to sell March 2012 dollars at 49.85-50.00 and to buy February 2012 dollars at 49.15-49.00.

The combination of exporters’ supplies and dilution in interest rate play eased FX premium into the support of 8.25% (3M) and 5.65% (12M). The bullish undertone in rupee and ease of overnight MIBOR into 8.70-8.65% will extend reversal into 8.0% in 3M and 5.5% in 12M. It is suggested to unwind “received book” there and await preparation of momentum for the next direction. Over all, premium should settle into ranges of 7-8% in 3M and 4.5-5.5% in 12M. Let us stay neutral at this stage.

G7:

EUR/USD lost steam ahead of identified sell zone of 1.3200-1.3250 (high of 1.3196) for sharp pull back into buy zone of 1.3075-1.3025 (1.3083) and now trading in the neutral zone of 1.3100-1.3150. Over all, given the mixed cues from external sector, near term consolidation at 1.30-1.33 is the preferred scenario before setting up directional break-out. The bias thereafter is for test of 1.2975 ahead of 1.2875. Let us trade end-to-end of 1.3050-1.3250 with stop on break thereof.

Let us hold on to “long” USD/JPY entered at 76.00 and add at 75.50 with stop at 75.25. The upside target can be 77.75/78.00 with mild BOJ entry while stronger force can drive the pair to as high as 79.00/79.25. EUR/JPY eased into the set buy zone of 99.80-99.30 (low of 99.59) and looks good for higher on positive momentum in EUR/USD pair. The upside target is at 101.50 without BOJ support and it would go much higher into 102.50/103.00 on BOJ intervention. Over all, in these two currency pairs, downside risk is limited and upside gain significant.

10Y Bond/OIS:

10Y Bond is expected to stay in tight consolidation mode at 8.12-8.17% till OMO is out of the way. Thereafter, auction news will drive the yield up into 8.20-8.25% giving good buying opportunity to replenish sales done at 8.10%. It would be good two-way trading opportunity within 8.10-8.20% with overshoot limited to 8.07-8.23%.

OIS rates eased with 1Y below 8.10% (low of 8.07%) and 5Y below 7.30% (low of 7.26%) holding above strong support at 8.05% and 7.25% respectively. The shift into second week of reporting fortnight will ease liquidity pressure, thus guiding overnight MIBOR into 8.60-8.75%. However, let us not chase reversal beyond 8.05-8.0% in 1Y and 7.25-7.20% in 5Y; considered good to unwind “received book”. Let us continue to look for two-way sideways trading mode at 8.0-8.15% in 1Y and 7.20-7.35% in 5Y with overshoot either-way to attract.

NIFTY

NIFTY could not muscle its way beyond 5300 (high of 5290) with good profit-booking sales before close of day at 5270. It is in order to look for consolidation at 5225-5300 before gaining steam to take out strong resistance zone of 5350-5400 to set up shift into new trading range of 5200-5700 (from the current 5000-5500). Strategic investors can absorb dips into 5225/5175/5100 with stop below 5050 for 5650-5700.

Gold/NYMEX Crude

Gold boxed at 1740-1760 (low of 1741 and high of 1761) and in the process triggered our sell at 1760 (while missing the earlier buy entry at 1730 with low at 1732). The break-out of this range will be triggered by news/data out of the US and/or the Euro zone. While we stay neutral on the break-out direction, the mild bias is in favour of extended weakness into 1710-1690 before sharp reversal into 1790-1800. Given this expectation, the strategy is to sell at 1760-1765 with stop at 1770 for 1710 and to buy at 1710-1690 with stop below 1680 for 1790-1800.

NYMEX crude moved below the strong support at 97 but failed ahead of lower end of the set short term range of 95-103 (low of 95.44). Let us now watch 95-100 with immediate bias for extended weakness into 92.50. Strategy is to stay short at 98.5-99.5 with stop above 100.50 for 95.00/92.50.

Have a great day ahead.........................Moses Harding