MARKET PULSE – 21st March 2012
Currency market
USD/INR held above the strong support zone of 50.05-49.80 (low of 50.07) for gradual move into first resistance zone at 50.35-50.50 (high of 50.43) before close at 50.39. In the process, moved into the sell zone of December 2012 dollars at 53.00-53.15 (high of 53.15); managed to get higher value as premium maintained its uptrend despite higher spot. In the meanwhile USD Index traded around strong support of 79.50 (79.88-79.35) in a weak undertone. What next? The sharp reversal in USD Index from above 80.50 to below 79.50 is not a good sign for the dollar bulls. The immediate term bias is for gradual move into next support around 79.10 and get into consolidation mode at 79-80. This process is seen as correction (and consolidation) before getting the desired momentum for test/break of recent high at 80.74 for near term objective at 81.75-82.00. This expectation should push rupee bulls into back foot. The immediate term outlook for rupee is bearish tracking weak stock market and high crude oil price in addition to the usual month/year end dollar demand. The post-monetary policy and post-budget expectation on the Indian economy is negative and weak with risk of adverse comments from rating agencies. The near term bias therefore has shifted for gradual move into the higher end of set near term range of 49.80-50.80. The strategy for importers is to stay covered on 15-45 days payables at forward value below 50.25 (spot at 50.10-49.80) while exporters to stay aside for spot at 50.50-50.60 (to sell April 2012 dollars above 51) and await further extension into 50.80-50.90 (to sell June 2012 dollars above 52). For now, let us watch 50.15-50.50 with overshoot limited to 50.00-50.65. The strategy for traders is to buy at 50.15-50.00 with tight affordable stop for 50.65-50.80.
FX premium remained bid on strong interest rate play with limited impact from favourable exchange rate play. The outlook on money market has turned very bearish post monetary policy and Budget. Now, trades are within the set strong resistance zone at 8.50-8.75% in 3M and 6.50-6.65% in 12M. The set up of strong momentum in the uptrend is also driven by fear of delay in rate cut actions from RBI. Now, we may need to allow for consolidation at higher levels till end of March and expect release of pressure on shift into FY13. For now, let us watch 3M at 8.35-8.85% and 12M at 6.50-6.75% with test/break either-way to attract. Strategic players can look to build March/February received book above 6.65% (308). It is good to receive S/June at 8.75-9.0% for ALM play to fund PCFC loan book through rupee sources.
EUR/USD is in consolidation mode at 1.3150-1.3250 (low of 1.3140 and high of 1.3264) with test/break either-way could not sustain. The inability of the USD to extend its gains from 1.3264 to below 1.3150 (into 1.3050) provides comfort to the Euro bulls. There is no change in strong fundamentals of US over the Euro zone and the underlying dollar bullish trend is very much intact. For now, let us watch 1.3100-1.3300 with overshoot limited to 1.3050-1.3350. The strategy is to play end-to-end by selling at 1.3275-1.3325 (with stop above 1.3350) and buying at 1.3125-1.3075 (with stop below 1.3050).
USD/JPY is in consolidation mode at 83-84 (low of 83.00 and high of 83.82). The immediate term outlook is for consolidation with downward bias into 82.50-82.00 before reversal while 84.00-84.25 remains firm. We stay neutral at this stage on directional break-out of 83-84 which will be good for 100-125 points. The strategy to re-convert the JPY liability into USD at 85.00-85.50 is valid. For now, let us watch consolidation at 82.75-84.25 with test/break either-way to attract. The strategy is to trade end-to-end by buying at 82.75-82.25 (with stop below 82.00) for 84.00-84.25. Let us avoid trading from “short” side now given the underlying dollar bullish trend into 85.00-85.50 in the near term.
EUR/JPY maintained its uptrend since the reversal from 105.75-105.50 support window towards the final pit stop at 111.50-111.75 (high so far at 110.82). Let us continue to watch consolidation at 108.50-111.50 and look for sharp reversal from higher end to lower end; not ruling out test/break thereof for further extension into 107.50/105.50. The strategy is to sell at 111.25-111.75 (with stop above 112.00). It is a good risk-reward trade; 50 pips on the table for 300-500 pip in the pocket if objectives are met. It is worth making an attempt having chased the 500 pip up move from 105.75.
Bond/OIS market
There are good signs of nervousness in the Bond/OIS market despite consolidation above 8.40% (10Y Bond); 8.20% (1Y OIS) and 7.60% (5Y OIS). However, there is no momentum as yet to test/break the outer end of set near term ranges of 8.35-8.45% (10Y); 8.15-8.25% (1Y OIS) and 7.55-7.70% (5Y OIS). Let us continue to watch these ranges with bias into higher end and prepare for test/break thereof in due course. The strategy is to sell 10Y bond at 8.37-8.34%; pay 5Y OIS at 7.55-7.50% and receive 1Y OIS at 8.25-8.30%. It would need RBI’s rate cut action to release the strong bearish set up on the Bond/OIS market driven by lack of confidence on the ability of the Government to meet its FY13 targets.
Equity market
The downward pressure on NIFTY lost steam ahead of good support zone at 5225-5175 (low of 5233) but reversal from there failed ahead of set resistance window of 5300-5325 (high of 5297) before close at 5274. The mood of investors is negative and any spike will be seen as correction to set up good selling opportunity. The immediate resistances are at 5325 and 5400; higher end of set weekly range of 5075-5400. There is no change in view of looking for extended weakness into 5175 (ahead of 5080). For now, let us watch 5175-5325 with bias into lower end for further extension into 5080 in due course. The strategy is to sell on correction into 5325-5375 (with stop above 5400) for 5175.
Commodity market
Gold traded the inner ring of 1635-1665 (high at 1669 and low at 1647) within the set near term range of 1600-1700 and in consolidation mode around 1650. There is no change in view of looking for consolidation with bias into the lower end in the near term. For now, let us watch consolidation at 1635-1665 with test/break either-way to attract. The strategy for fleet footed traders is to trade test/break of this range with tight affordable stop while strategic investors can look to sell at 1685-1700 (with stop above 1710) for 1610-1600.
NYMEX crude is unable to hold on to its strength into 108-110 resistance window but reversal from 108.24 found good support above 105.50 (low of 105.74). The undertone is slightly bullish despite intervention fears from the G3. The more time it spends above $105, the risk is higher for test/break of 110 (into 115) before sharp reversal. Let us keep this risk factor in mind at this stage. For now, let us continue to watch consolidation at 103-108. The strategy is to play end-to-end by buying at 103.5-102.50 and selling at 107.50-108.50 with tight affordable stop. It is possible that we see end-to-end moves by close of week.
Next update on 26th March......It is a long week end; have fun..................Moses Harding
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