MARKET PULSE: update for 27th March 2012 & review of weekly report
Currency market
USD/INR lost steam at the set resistance/sell zone of 51.40-51.50 (high of 51.49) before close of day at 51.27. In the process, December 2012 dollars hit a high of 54.04 and 12M forward dollars at 54.65; considered too expensive and thus the strategy to cover January-March 2013 export receivables there. These are the levels which prompted RBI to use extreme measures to defend rupee; hence it is prudent to take note of the importance of forward value over 54. The risk of spot rupee trading above 54 in 2012/FY13 is very low. Let us continue to believe that extended spot rupee weakness into 51.50 is not sustainable and would prefer gradual reversal into 50.65-50.50 ahead of 50.15-50.00. The immediate objective is at 50.85-50.65 where traders can look to unwind “shorts” entered at 51.40-51.50 (with trail stop at 51.35). Over all, let us watch consolidation at 50.60-51.10 before getting the focus back into 49.50-50.50 in due course. USD Index is looking weak having taken out strong support at 79.10 and now set for further extension into 78.20-78.00; break of which is very bearish for the dollar.
EUR/USD lost steam at the set support/buy zone of 1.3200-1.3150 (low of 1.3193) and reversed sharply to take out strong resistance at 1.3290 and looks good for extension into 1.3450-1.3500. Hold on to long position entered at 1.3200 (with trail stop at 1.3275) for 1.3450-1.3500. Over all, we should see end-to-end of 1.32-1.35 in this run.
USD/JPY moved into set resistance/sell zone of 83.00-83.50 (high of 83.10) and looks good for reversal below 81.75 into 80.25-80.00 (trigger from reversal in EUR/JPY). Hold on to “shorts” with t/p at 81.00-80.50 and turn “long” at 80.75-80.25 (with stop below 80) for 85.00-85.50. Over all, we should see end-to-end move of 80-85 in this run.
EUR/JPY overshot the set resistance/sell zone of 110.00-110.50 but looks top heavy for reversal into 108.50 (ahead of 106.25-105.75) and any upside momentum will fail ahead of 111.50. Look to stay “short” for this move. The trigger will be from USD/JPY. Over all, we should see end-to-end move of 105.50-111.50 in this run.
FX premium is in strong traction with exchange rate play; 3M is steady at 8.50-8.75% tracking high call/short term money market rates while 12M traded 6.10-6.35% tracking spot rupee at 51.50-51.25. Continue to watch 3M at 8.25-8.75% and 12M at 6.0-6.5% with test/break either-way to attract. Play end-to-end of these ranges and stay “received” on 12M on shift into FY13. Over all, near term trend is down on shift into FY13 for consolidation in 3M at 7-8% and in 12M at 5.5-6.0%.
Bond/OIS market
Call money rate sailed over the MSF rate of 9.5% (overnight MIBOR at 9.62%) and draw down from LAF counter at record Rs.1.96 Trillion (excluding marginal drawdown from MSF counter). However this being considered temporary, there was not much impact on term money rates. Three factors of higher demand on start of reporting fortnight; unattractive dollar credit and higher overnight rates have contributed to this spike. Things should fall in place on shift into FY13 with draw down from LAF expected to stabilise around Rs.50-75K Crores on fortnightly average basis. We may need to live with this “pressure” (higher LAF drawdown and higher call money into double-digit) this week.
10Y bond yield held at previous resistance/sell zone of 8.38-8.35% (low of 8.38%) and reversal from there moved into higher end of set short term range of 8.25-8.50% for close at 8.47%. The risk of extended weakness in the Bond market into 8.50% (and possibly further into 8.65%) has come into the radar now. In the given bearish set up on the bond market driven by supply side concerns and inflation worries, rate cut from RBI could provide bit of relief and this would be essential to guide consolidation in 10Y Bond yield at 8.35-8.50%. Now, let us watch 8.40-8.55% with risk of extended weakness into 8.65% where strategic investors can choose to open the investment book for FY13. Strategic investors can buy one-third of appetite at 8.55-8.58%; let us set the second entry level in due course.
OIS rate held well at strong support of 8.10% (1Y) and 7.50% (5Y) before close at 8.14% and 7.56% respectively; in the process triggered the 5Y pay at 7.50%. No change in view in looking for consolidation at 8.10-8.20% and 7.50-7.65%. The strategy is to hold on to 1Y receive book entered at 8.25%; add at 8.20-8.25% and hold on to 5Y paid book now average at 7.51%; add at 7.50-7.45%. The unwind target for 5Y is at 7.65-7.70% and 1Y at 8.0-7.90%. Till then, enjoy the carry of over 70 bps.
Equity market
NIFTY met the first objective at 5175 (low of 5174.90) before close at 5184; thus providing exit on our “shorts” entered at average 5350. Now, immediate resistance zone is at 5265-5280 and support zone is at 5125-5145 (ahead of 5010-5040). For now, let us watch 5050-5250 with overshoot limited to 5000-5300. The strategy is to sell at 5250-5300 (with stop above 5325) for profit in two lots at 5125 and 5025. Strategic investors can stay away for 5025-4950 to open the investment book for FY13.
Commodity market
Gold gained from USD weakness for move into strong resistance at 1685-1700 and looks good for further extension. Having traded end-to-end of 1635-1685 (sharp gains from 1627 to over 1685), we may now need to revise near term range into 1665-1715 with bias into higher end. It is important for USD Index to hold above 78.20-78.00 to prevent extended rally in gold. For now, stay cautious buyer on dips with stop below 1660 for 1700-1715.
No change in view for NYMEX crude; same as prescribed in the Weekly Report.
Have a great day ahead.............................Moses Harding
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