MARKET PULSE – 29 February 2012
Currency market
The worry on higher crude oil price and resultant weakness in domestic stock market pushed rupee down (from 48.94) into the set sell zone of 49.15-49.25 (high of 49.30) but could not sustain there for close at 49.07. In the process, exporters got good opportunity to sell April 2012 dollars above 50 (high of 50.08) before close at 49.84. What next? The near term bullish undertone for rupee is marginally diluted on fear of extended rally in NYMEX crude above 110. USD Index too getting good support around 78.20. Both these factors could set up weakness in rupee into 49.35-49.50 considered good to sell July 2012 dollars around 51. There is no risk at this stage to look for extended rupee weakness beyond 49.50 as we stay tuned to near term consolidation at 48.50-49.50. USD Index is expected to crash through strong support at 78.20 into 76.50-76.75 before setting up strong rally; thus expected move into 48.65-48.50 buy window for importers is very much on cards. For now, let us watch 48.85-49.15 with overshoot limited to 48.75-49.25 and the bias into the near term is for one more look at 48.60-48.50 before strong bounce. The strategy is to sell April 2012 dollars around 50 (spot move into 49.20-49.25); sell July 2012 dollars around 51 (spot at 49.40-49.50) and buy March 2012 dollars below 49 (spot at 48.65-48.50). Over all, rupee will continue to remain bullish into the near term tracking high domestic interest rates; liquidity over-hang in western markets and dollar supply driven mode in the forward market attracted by 9.0-6.5% premium across 3-12M tenor.
USD/JPY nicely traded end-to-end between set sell zone of 81.50-82.00 (high of 81.61) before sharp reversal into the buy zone of 80.25-79.75 (low of 79.99) and got into consolidation mode around 80.50. We highlighted topping out signals above 81.50 for deeper correction into 79.50 before getting into bullish uptrend again. For now, we watch two-way sideways trading mode at 79.50-81.50 with strategy to sell at 81.25-81.75 and buy at 79.75-79.25 with tight affordable stop. EUR/JPY was down sharply from below 110 to 107 but maintains bullish undertone into the near term. The broad trading range now is at 106-111 with test/break either-way not to sustain. Let us be cautious buyer on dips into 107.25-106.25 (with stop below 106) for immediate objective at 110.50-111.50.
EUR/USD is struggling to hold on to its gains into earlier sell window of 1.3450-1.3525 (high of 1.3479) but reversal from there is supported above the buy window of 1.3350-1.3275. Positive developments in the Euro zone lead by aggressive financial support and clear intent to bail out Greece is keeping the underlying bullish mode into the near term for extended gains into 1.3550-1.3625. Beyond there, let us stay neutral and await fresh cues. Let us now watch two-way sideways trading mode at 1.3325-1.3550 with overshoot limited to 1.3250-1.3625. The strategy is to buy at 1.3325-1.3250 and sell at 1.3550-1.3625 with tight affordable stop.
FX premium lost momentum dot at the set resistance of 9% in 3M and 6.5% in 12M before mild reversal which got supported above 8.5% and 6.25% respectively. In the process, March/January failed at the door step of set receive zone of 6.25-6.40% (high of 260) to set up a quick 10 paisa trade for reversal below 250. What next? The interest rate play is in favour of the bulls while exchange rate play has turned neutral. Let us watch consolidation in 3M at 8.5-9.0% and 12M at 6.25-6.5%; test/break either-way to attract. The strategy is to absorb 3M above 9% for ALM play (to fund PCFC from rupee sources) and receive March/Feb at 6.25-6.40% (284-291) with tight stop above 6.5% (296). Fleet footed traders can receive 12M at 6.50-6.65% (with stop above 6.75%) for push back to 6.15-6.0%.
Fixed Income (Bond/OIS market)
System liquidity continues to stay tight with LAF drawdown at record Rs.1.80 Trillion. However, Bond market stayed steady with 10Y bond yield up from 8.18% to 8.23% before close at 8.21%. 1Y OIS rate eased from the set receive zone of 8.23-8.28% (high of 8.24%) but reversal from there found support above 8.15%. 5Y OIS rate was tightly boxed at 7.40-7.45% range. RBI’s preference is to continue with OMO operations instead of delivering CRR cut ahead of midterm policy review to ease current tight liquidity situation; thus announcement of Rs.12K OMO for the week was not a surprise. The OMO expectation has indeed arrested extended weakness beyond 8.23-8.25% at this stage. This should provide temporary relief to bond market to drive the 10Y bond yield into 8.15%. No change in view as we look for consolidation in 10Y bond yield at 8.10-8.35% (within 8.0-8.5%) into the short term; thus extended gains below 8.15% (into 8.10%) will set up good opportunity to sell 10Y bonds (by replacement of 1Y above 8.5%) as risk of weakness into 8.30-8.35% is very much valid at this stage. For now, let us watch 10Y bond yield at 8.15-8.25%; 1Y OIS rate at 8.10-8.20% and 5Y OIS rate at 7.30-7.45%. The strategy is to sell 10Y bond at 8.14-8.11% (with stop below 8.09%); pay 5Y OIS at 7.35-7.30% and receive 1Y OIS at 8.20-8.25% for near term objectives at 8.28-8.30%; 7.50-7.55% and 8.05-8.0% respectively.
Commodity market
Gold got supported at the lower end of 1760-1835 range (low of 1762) and prepared its move into strong resistance at 1802 (high so far is at 1789). The turnaround from 1760 is positive but lack of momentum for bullish extension beyond 1780 (into 1802) turns the immediate term outlook neutral to look for two-way consolidation at 1760-1800. Let us play end-to-end of this move with tight stop on break thereof. The bias thereafter is for extended move into 1835 followed by bullish extension into 1920. Let us hold “long” entered at 1765-1762 with trail stop at 1775 and watch price action at 1795-1805.
NYMEX crude did not have the momentum to move past strong resistance at 110 (high of 109.77) but reversal from there was held at strong support above 106 (low of 106.20). As said, extended rally in NYMEX Crude above 110 will not be good for the global economy. There has been serious resistance to this move from the IMF with rumours of release of strategic petroleum reserves from the US to arrest this speculative demand with huge supplies. Let us continue to look for consolidation at 103-110 and prefer test/break of lower end into 97-95 in due course. Strategic investors who rode the move from 95 to 110 can afford to stay “short” at 109-111 (with tight stop above 112) for 97-95.
Equity market
We saw a quick run into the lower end of set near term range of 5225-5575 (low of 5268) and bounce from there attracts good selling interest at 5385-5400 (high of 5391) before close at 5375. The immediate term outlook is mixed despite good buying interest from FII community. The concerns on OIL factor and domestic economic and monetary woes continue to keep domestic investors in risk-off mode. The alternate option in Fixed Income (low risk; high reward) is attractive at this stage. There are uncertainties ahead from midterm monetary policy review (15th March) and Union Budget FY13 (16th March). Till then, external factors will provide directional momentum to domestic stock market with FIIs absorbing extended correction while DIIs selling into rallies. For now, let us watch consolidation at 5250-5550 with bias into lower end. The strategy is to trade end-to-end by selling at 5550-5625 and buying at 5250-5175 with tight affordable stop on break thereof. Strategic investors can await correction into 5225-4985 to buy in three lots at 5225/5105/4985 (with stop below 4950) for 5630-5740.
Have a good day ahead..............Moses Harding
No comments:
Post a Comment