FOMC and Scottish referendum is out of the way without any impact! The developments (mainly from diluted hawkish tone of FED) and Euro zone uncertainties have added strength to the US equities, bonds and currency, not only into the near term but also for extended period of time. The risk-on investor sentiment is no relief to commodity assets with only support from short-squeeze and minimal hedge-play! The global impact on Indian markets is mixed given the recent bull-run across asset classes, with move either-way remaining shallow! The worry from geo-political tensions in Russia and Middle East remain valid but not seen to have major impact on financial markets. The trigger for directional bias will be from economic data print which is also not expected to provide pleasant or unpleasant surprises and to expectation. All taken, markets will stay sideways for the week with mild bullish momentum.
Trading range for the week:
NIFTY continues to struggle at strong resistance and "no-buy" zone of 8150-8200/8300 while strong bounce back from 7925 add confidence to the bulls. There are no strong cues to review the set NT focus zone of 7850/7900-8150/8200; good risk-reward to play end-to-end and not favourable risk for chase beyond 8150-8200.
Rupee boxed at 60.70-61.20 (within big picture range of 60.20-61.70) with good hedge interest at both ends. The break-out bias however is for extended weakness into 61.45/61.70 in the near term. Retain focus for end Mar'15 $ at 63.00/63.15-63.85/64.00; break-out either-way not expected to sustain. Retain hedge strategy to hedge 15-30 day imports at forward rate of sub 61.00 and exporters to cover 12M $ at 66.15-66.40.
10Y bond is in back-and-forth mode at 8.40/8.45-8.55/8.60% and likely to stay here for extended period. As per script, bond spread with US 10Y yield is squeezed from 6.20-6.35% to 5.80% with US 10Y yield spike from 2.30-2.35% to 2.55-2.65%. There are no major risk from domestic cues with improved outlook on inflation, ample liquidity and surplus cash with the Government. All taken, 8.40% 2024 bond is seen sideways at 8.40-8.50% at 5.85-5.90% spread with the US 10Y seen in consolidation mode at 2.55-2.65%. 10Y benchmark bond into premium (below 8.40%) may not have investor appetite.
DXY retains bullish undertone for extended rally over 84.75 into/over 86.00 with strong base at 83.85-84.00. Euro retains bearish momentum into 1.2650-1.2750 (resistance around 1.29) while USD/JPY extend lead into 110.65 with strong base at 107.25-107.50.
Brent Crude in consolidation mode around 98 (within 95/96-99/100) post the sharp fall from strategic sell zone of 115. Retain strategic consolidation now at 85-100 (favourable shift from earlier focus zone of 100-115).
Gold at striking distance at 1185-1200 to complete the chase from 1330-1345. Prefer near term stability at 1185/1200-1240 (trail stop at 1241).
Have a great week ahead!
Moses Harding
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