MARKET PULSE: 9th May 2012

MARKET PULSE: Short update for 9^th May 2012

Currency market

Rupee recovery from set sell zone of 53.60-53.75 (low of 53.76) found solid resistance at 52.70 (high of 52.67) for reversal back to 53.35 (low of 53.32) before close of day at 53.13. Over all, rupee traded to the script; playing end to end of 52.70-53.60 range before adjusting to the new range of 52.70-53.35. For now, let us stay with set weekly range of 52.70-53.60 with immediate bias into higher end driven by weak stock market; test/break of higher end (into 54.00) will be on USD Index rally into 80.40-80.75 while 79.50 stays firm. Over all, undertone of rupee in the near term is neutral to bearish; hence importers need to stay cautious on near term payables while exporters stay away for weakness into 54. There is no change in expectation of near/short term consolidation at 52-54.  

EUR/USD is now in consolidation mode at 1.29-1.31 with test/break either-way to attract. The strategy is to trade end-to-end by selling at 1.3075-1.3125 and buying in two lots at 1.2925-1.2900 and 1.2850-1.2825 with tight affordable stop.

USD/JPY looks weak for test/break of strong support zone at 79.65-79.50 for extended weakness into 78.25 while 80.50-81.00 stays firm. The strategy is to trade from “short” side for 78.50-78.25.

Equity market

NIFTY failed to hold on to its gains and fell below 5000 (low of 4983); ideally strong support at 5080 should have held for minimum target of 5210 but failure from 5120 (to below 5000) is bearish into the near term. Now, it is important that next support at 4950 should hold to retain the consolidation play; else entry levels set for strategic investors at 4775-4525 will come into the radar. The bearish undertone is also driven by weak global bourses; DJIA has pierced through the strong support at 13000 into lower end of set near term range of 12850-13350. There is nothing positive at this stage to keep the bulls into the street, who may chose to run for cover. Let us stay neutral to bearish and watch 4950-5080; test/break of lower end will be bearish for quick run into 4775.

Interest rate market

10Y bond rallied to set sell window of 8.54-8.51% on surprise OMO announcement by RBI to complete end-to-end move from the buy zone of 8.65-8.75%. The signals from RBI is clear that it would enter to arrest extended weakness in 10Y bond yield beyond 8.65% but pipe-line supplies (and bearish undertone in rupee) would limit extended gains beyond 8.50%. Bond Swap spread (between 10Y Bond yield and 5Y OIS rate) is sharply down from 118  bps to 103 bps; pushing “long bonds” deep into the money and “paid OIS” close to cost (excluding “carry”). For now, let us stay with consolidation play at 8.50-8.65% and test/break either-way is not expected to sustain.

OIS rates are steady above strong support at 8% (1Y) and 7.50% (5Y). Let us continue to stay with set ranges of 7.95-8.05% (1Y) and 7.45-7.60% (5Y) with strategy to receive 1Y at 8.05-8.10% and pay 5Y at 7.50-7.45%.

FX premium is now into consolidation mode with neutral impact from interest and exchange rate play. Let us watch 3M at 7.25-7.75% and 12M at 6.0-6.25% with strategy to receive 3M above 7.75% and pay 12M below 6%.

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