End of day report for 23 October 2012

Currency market

It is a Tom-and-Jerry play between the bulls and the bears! Rupee bulls regained their strength from above 53.80 (low of 53.98) into first objective at 53.40-53.30 (high of 53.34) but the bears flexed their muscles for push back above 53.80 (low of 53.84) before close at 53.73. Continue to believe rupee weakness above 53.30-53.80 is not real and normalcy will be restored by end of this month for revert into rupee bullish trend. There are no strong fundamental reasons to keep rupee weak for extended period of time since recent high of 51.35 punched on 5^th October. It is considered good for exporters to cover 1-2Y receivables on this extended weakness beyond 53.60. The short/medium/long term outlook for rupee continues to stay bullish for consolidation at 50-52 ahead of 49-51 followed by 48-50. The only risk factor is the political risk and now the support from major opposition party to the Government’s stance on reforms provides comfort and dilutes this major risk in play. The bearish set up on commodity prices and rupee stability (with bullish undertone) will do lot of good to dilute risks from fiscal deficit, CAD and inflation. The resultant favourable stance by Global rating agencies will provide momentum to rupee bullish trend into short/medium term.

EUR/USD could not take out strong resistance at 1.3065-1.3090 (high at 1.3083) and reversal from there has moved into strong support at 1.3010-1.2985 (low so far at 1.2999). USD Index too is sharply up from 79.40 to above 79.70. It is important for Euro to stay firm at 1.3010-1.2985, else risk of extension into 1.2950-1.2900 comes into play. This risk factor of strong reversal from 1.3065-1.3090 (or from 1.3145-1.3170) for possible pass through below 1.2985 into 1.2950-1.2900 was flagged yesterday, and this risk remains valid while below 1.3070-1.3085.

The reversal in USD/JPY from 80 held well at set buy zone of 79.75-79.60 (low of 79.72) and now making next attempt to take out 80 which then could extend to 80.50-80.65. Will give up this stance below 79.50 which could then extend into 79.20-78.95 (yesterday’s buy zone from where rally into 80 kicked in) before prospects of sharp up move.   

Interest rate market

10Y Bond completed end-to-end of 8.12-8.15%. OIS rates stayed well bid above 7.57% (1Y) and 6.97% (5Y) for gradual move into higher end of set weekly range of 7.57-7.62% and 6.97-7.02. Our action was to play test/break of either-end and this strategy has worked well. The momentum is for extension into 8.15-8.17%, 7.62-7.65% and 7.02-7.05%, considered good to say “mine” as strategic play into monetary policy review.

FX premium held below receive zone of 6.50-6.65% (3M) and 5.60-5.70% (12M). Continue to watch consolidation at 6.25-6.50% and 5.35-5.60%; test/break either-way will trigger our actions.

Equity market

NIFTY traded end-to-end of 5680-5730 intra-day range (high at 5720 and low at 5681) before close at 5691. Continue to watch immediate term support at 5680-5660 ahead of near term support at 5660-5630 followed by short term support at 5630-5580. We have already seen the first move from above 5630 (low of 5634) into 5730 (high of 5722). The next major triggers for the rally is RBI’s monetary policy, next round of tax reforms and Parliamentary approval of bills cleared by the Cabinet. The undertone continues to stay bullish to take out immediate (but strong) resistance at 5730-5750 for 5800-5830. We have not yet taken the sight away from short/medium term objective at 6330.   

Commodity market

Gold is down from the first sell zone of 1730-1735 (high of, could you believe 1729.99!!) to pass through 1710 (low so far at 1705.60) into set weekly objective at 1675-1660. Now, 1720 should stay firm for this move; watch 1670-1720 with bias into lower end.

NYMEX Crude is now below 88.50 (low so far at 87.27), not far away from the set weekly objective at 86.50-85.50. The undertone is bearish for extension into 82.50-81.50 ahead of 77.50 for complete reversal of recent rally from 77.28 to 100.42. This bearish set up on CRUDE has provided strong tailwinds to dilute pressure on fiscal deficit, CAD and inflation.   

Next update on 25^th October..............................Moses Harding