01 December 2011
Currency market
USD/INR has now perfectly traded end-to-end of set near term range of 51.50-52.50; failing at the sell window of 52.35-52.50 and down into buy window of 51.65-51.50. I have been highlighting dollar liquidity squeeze as the major cause for dollar rally and downward pressure on all asset classes. Now that FED (and other major central banks) has joined hands to address this issue; markets will get a bit of relief in the near term. I was also looking for correction in USD Index from below 80 back below 78. FED action triggered this move. Is this good enough to trigger the market into a bull phase? The answer is obviously a big NO. The set short term range of 51-54 continues to stay valid. I believe, it would make good sense for RBI to buy dollars on extended rupee gains below 51.50 to pile up ammunition to defend rupee at later stage. For now, let us watch 51.50-52.00. It is also possible for rupee to extend its reversal to 51.15-51.00 in the near term but will not advise to chase rupee gains beyond there. Strategy for importers is to cover 6-12M payables in three lots on spot gains into 51.60-51.50; 51.35-51.25 and 51.10-51.00. Exporters who have already sold rupee weakness above 52.35 can look to exit at these levels and await re-visit into 52.25-52.75.
The reversal in EUR/USD from 1.3375-1.3425 held well at 1.3250-1.3200 before spike above 1.35 triggered by next round of QE from FED & Co. This expectation shifted our near term focus back into 1.30-1.40 while ruling out excessive dollar gains below 1.3150-1.3000. Now, we have moved into a new range play at 1.3250-1.3750 (within 1.30-1.40). Now, move into 1.3350-1.3250 will provide buying opportunity for 1.3650-1.3750. Beyond there, the bias is for test/break of lower end into 1.3150-1.3000 not ruling out further extension into 1.2850 which is strong medium term base.
USD/JPY is holding well above support at 77.25 and likely to consolidate within 77.25-78.25 before move into 79.50-80.00. It is a good opportunity for BOJ to lead concerted intervention to push USD/JPY back above 80. Stay “long dollars” for this move.
Commodity market
The reversal in USD strength has provided test/break of strong resistance around 1710 to get the focus back into 1790-1810 while 1710 holds. Over all, short term range play within 1660-1810 stays valid.
NYMEX crude also rallied into 100-103 resistance window and expected to stay in consolidation mode at 97-102 while expectation of pull back into 93-90 stays valid.
NIFTY
The reversal from 4850-4875 resistance window held well at 4725-4675 support zone followed by rally into 5000 thanks to next round of QE from FED. While releasing the pressure on dollar liquidity squeeze is good for developed markets to arrest extended weakness, it will not be good enough to turn the market into bull phase given the weak domestic fundamentals driven by low growth; high inflation; high fiscal deficit; tight liquidity and high interest rates. We may now need to shift near term range play back into 4700-5200. Any move into higher end will be good opportunity for investors to unwind longs. It is also considered good for FIIs (ahead of yearend) while USD/INR trades below 52. For now, let us watch 4850-5150. The strategy would be to buy in two lots 4925-4900 and 4850-4825 with stop below 4800 for 5125-5150. Strategic players can look to build “shorts” on extended rally into 5200-5350. Over all, we will track short term range play at 5350-4350; downward shift from our earlier play from 5700-4700.
Moses Harding
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