MARKET PULSE - Short update for 10th May 2012

MARKET PULSE: Short update for 10^th May 2012

Currency market

Rupee has now completed end-to-end of set weekly range of 52.70-53.60 and in preparation for extension into 54.30. Rupee has shifted into a new range of 53.30-54.30 and the momentum looks strong for extension into 55.65 into the near term. The bearish set up on rupee is driven by strong USD Index (immediate target at 80.60) and weak NIFTY (immediate target at 4775) while cash market remains in dollar demand driven mode with limited supplies from capital account and forward market. The strong downtrend in BRENT Crude below $115 provides comfort for rupee depreciation at this stage. RBI’s ability to intervene is limited given the moderate dollar resource in its balance sheet and deficit rupee liquidity. For now, let us watch 53.50-54.30 with bias into higher end not ruling out extended weakness into 54.55. The strategy is to buy correction into 53.50-53.15 to cover up to June 2012 imports.

Interest rate market

10Y bond yield held well at 8.50% before reversal for close of day at 8.56%. No change in view of looking for sideways trading mode at 8.50-8.65% with test/break either-way not expected to sustain. The strategy is to sell at 8.53-8.50% and buy at 8.62-8.65%.

1Y OIS rate held well at 8.0% for strong push into set receive zone of 8.05-8.10% (high of 8.06%) while 5Y OIS rate reversed from set pay zone of 7.50-7.45% (low of 7.49%) before close at 7.56%. Let us continue to watch 1Y at 7.90-8.05% (with bias into lower end) and 5Y at 7.45-7.60% (with bias into higher end) where we unlock 1Y received book and 5Y paid book (enjoying a “carry” of 55 bps till then).

FX premium is now strongly in the grip of exchange rate play with limited upward momentum from interest rate play. In the intra-day update (of 9^th May), we asked to stay received in S/April at 5.85-6.0% in anticipation of strong reversal. For now, let us watch 3M at 7.0-7.5% and 12M at 5.5-6.0% with bias into lower end. We need to watch rupee spot above 54.50 to provide test/break of lower end. The strategy is to stay “received” for this move.

Equity market

NIFTY held well at solid support of 4950 (low of 4956) but bounce was shallow to lose steam at 5016 before close at 4974. The sentiment is weak and momentum is strong to provide break of 4950 for quick extension into 4775-4525, considered good to enter for strategic investors. For now, let us watch 4775-5025 with bias into lower end. The strategy is to stay “short” for this move.

Commodity market

Gold lost its shine for sharp fall below strong support at 1615 for move into immediate objective at 1565 along with shift into new near term range of 1520-1620. Now, let us watch consolidation at 1565-1615 with bias into lower end for next objective at 1520. Hold on to “short” with trail stop at 1600 for the said objective.

NYMEX Crude is holding well above support at 95.00 and the momentum is strong for extended weakness into 92-90 in the near term. Now, let us watch 93-98 with bias into lower end for immediate objective at 90.

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