Currency market
USD/INR is in consolidation mode at 51.50-52.50. This is the range I discussed in my previous report that would provide good comfort to RBI to the extent that RBI would shift into dollar buy mode at 51.65-51.50 to focus on release of pressure on rupee liquidity squeeze. Now, 52.15/52.35/52.50 will attract dollar supplies while 51.85/51.70/51.50 attracts bids. The factors that drove rupee in to strong bear grip continue to stay valid; hence there is no conviction to look for rupee bull rally at this stage. Given the positive cues emerging from the US and no signs of recovery in the Euro zone; USD will continue to have a firm hold on the Euro to drive the USD Index above 80 in due course. Hence, we cannot rule out test/break of all time low at 52.73 for extended run into 53.50-54.00 to complete end-to-end move of set near term range of 51-54. Let us keep this at back of our mind. Strategy for importers is to hedge 1-3M payables on spot gains into 51.65-51.50 and 12M dollars above 54 is not a bad one for exporters.
EUR/USD is boxed between strong support zone of 1.3250-1.3200 and resistance zone of 1.3350-1.3400. It is traders market with price action driven by news and data. The trend is clearly down into 1.3150/1.3000/1.2850 while 1.3400/1.3550/1.3650 to hold any correction driven by positive news out of the Euro zone. The strategy therefore is to wait for move into the said levels; initiate appropriate actions with tight stop on firm break out into the next level. However, strategy for exporters is to cover Euro receivables in parts at 1.3400-1.3650 while importers to stay aside for 1.3100-1.2850. It is possible that EUR/USD gets into short term consolidation at 1.30-1.40 with overshoot limited to 1.2850-1.4150. For now, let us watch 1.30-1.35 to stay valid.
USD/JPY has nicely moved from the set buy zone of 77.25-76.75 to t/p zone of 78.25-78.50. The set objective of extended dollar gains into 79.50-80.00 is valid. Let us now shift our focus at 77.50-79.50 with strategy to buy at 77.75-77.25 with stop below 77 for 79.25-79.75.
Let us stick to 3X12 play in FX premium; the set strategy to stay paid at 2.5-2.25% has proved well. During this time, we have already seen strong spike in 3M from below 4.5% (to above 5%) and in 12M from below 3% (to above 3.25%). It is safe to assume that we get into consolidation play at 4.5-5.5% in 3M and 3.0-3.5% in 12M. The signals are mixed and balanced on interest and exchange rate play to gain momentum for test/break either way.
Commodity market
Gold is trading in familiar range of 1680-1710 with overshoot limited to 1660-1730. Let us continue to watch sideways trading mode. It is traders market to play end-to-end move with tight stop on test/break thereof.
NYMEX crude is also in consolidation mode at 95-100. The Iran and Syria related issues is providing good support while growth pressures in the global economy attracts supplies over 100. Let us continue to watch 95-100 with overshoot limited to 93-103.
Bond/OIS market
10Y bond is in consolidation mode at 8.80-8.85%. No change in view of looking for sideways trading mode at 8.75-8.90%. The break-out direction bias is clearly towards extended weakness into 9% which should hold. Strategic investors can buy into weakness at 8.90-9%.
OIS rates rock steady with 1Y supported well at 8.10% and weakness in 5Y holding at 7.40%. Let us continue to watch tight range of 8.10-8.20% in 1Y and 7.30-7.40% in 5Y and test/break either-way not expected to sustain. RBI will be happy to see this kind of price stability in the bond and OIS market.
NIFTY
The start of the week rally is getting difficult to get through resistance at 4850-4875. The market is traders’ delight now, giving 200-300 points exit in quick time; thus we are seeing sharp corrective rally on shorts squeeze. The mantra is to trade from “short side” and stay fleet footed to make quick bucks. We may need to review the near term range play into 4650-5150. US market is looking to get better and any positive news from Euro zone will trigger shorts squeeze. However, the trend is clearly bearish and it is matter of time before we take out 4650 for extended run into 4450-4350. Now, selling levels are at 4850-4875; 4975-5000 and 5100-5150 while short squeeze to come in at 4700-4650.
Moses Harding
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