MARKET PULSE: Weekly report for 29 October – 02 November 2012
Currency market
Rupee traded in consolidation mode between set support at 53.85-54.00 (low of 53.89) and resistance at 53.35-53.20 (high of 53.33) before close of week at 53.55. MARKET PULSE strategy was to sell 1-2Y dollars at 53.85-54.00 and to hedge 7-15 days imports at 53.40-53.30, and considered rupee weakness into 53.60-54.30 as excessive. There are good signals to confirm completion of correction phase from 51.35 at 53.98 but general risk-off mode and resultant strength for the US Dollar would provide consolidation in the immediate term at 53.20-53.80 with extension limited to 53-54. The near/short term bias is for consolidation mode at 51-53 with rupee bullish outlook for extended gains below 51.35 before end 2012. There is no change in hedge/trading strategy and would continue to see 53.60-54.30 not safe to stay “long dollars” for strategic play and stay with set medium/long term rupee range at 49-54.
EUR/USD could not hold on to gains above 1.3070 (high of 1.3083) and fell from set sell zone of 1.3045-1.3070 into set objective at 1.2925-1.2850 (low of 1.2881) before close of week at 1.2945. In the meanwhile USD Index got solid support above 79.40 to meet the first objective at 80.20 before close at 80. What next? USD Index failure above 80.20 provides comfort to Euro bulls but near term “floor” is up from 78.60 to 79.40 not ruling out extended gains into 80.70, and would need improvement in “risk” for sharp reversal from 80.20-80.70 into 79.60-79.40 ahead of 78.60-78.40. Therefore, risk of extended correction into 1.2825-1.2800 is valid while below 1.3045-1.3070. The strategy is to play end-to-end of this near term resistance and support zones.
USD/JPY lost steam ahead of the set near term resistance 80.45-80.60 (high of 80.38) for back into earlier support at 79.40-79.65. The risk now is for extended correction below 79.40 into 78.65-78.50 while 79.95-80.20 stays firm. The strategy is to reinstate “longs” in two lots at 79.05-78.90 and 78.65-78.50 with tight stop for 80.35-80.85 while traders can look to sell at 79.95-80.20 for 78.65-78.50.
Commodity market
NYMEX Crude has now met the first objective at 85.00 (84.94) from the set sell zone of 92.50-93.50 (high of 93.05) and in consolidation mode at 85.0-86.50. MARKET PULSE continues to stay bearish till complete reversal of recent rally from 77.28 to 100.42. Now, let us watch consolidation at 82.50-87.50 before heading into 77.50-82.50 consolidation in the immediate term. The strategy is to sell in two lots at 86.50-87.00 and 89.00-89.50 with stop above 90 for 82.50-77.50.
Gold met its intra-week target at 1700-1695 (low of 1698) from immediate resistance at 1730 and now in consolidation mode at 1710-1720. It is a $100 run from recent high of 1795 into 1695 in rather quick time, hence it would be in order to allow consolidation at 1695-1730 before heading into set near term objective at 1665-1650. The strategy is to sell in two lots at 1715-1720 and 1735-1740 with tight stop for 1695/1665.
Interest rate market
10Y Bond continues to stay in tight consolidation at 8.12-8.15% ahead of RBI’s policy move. OIS rates too struck at 7.57-7.62% (1Y) and 6.97-7.02% (5Y). It is traders’ market playing end-to-end of this range while strategic players hold on to “long” Bonds entered above 8.17% and 5Y OIS received book entered above 7.02%. What next? There will be price-stability in Bond/OIS market post monetary policy. A 25 bps cut in rates and CRR would push 10Y Bond yield into 7.97-8.07% and 5Y OIS into 6.87-6.92 (1Y OIS at 6.47-6.52). CRR cut of 25-50 bps without rate cut will push 10Y Bond yield into 8.12-8.17%; 5Y OIS at 6.97-7.05% and 1Y OIS at 7.60-7.65%. An unchanged stance from RBI will drive the market into bearish mood; 10Y Bond yield at 8.15-8.20% and 5Y OIS at 7.0-7.05%. It will be difficult for RBI to defend an unchanged stance given the excessive liquidity squeeze and meeting the displeasure of the Ministry. For the week, let us watch 10Y Bond at 8.02-8.17% and 5Y OIS at 6.90-7.05% with bias into lower end while move into higher end will be good near/short term investment opportunity.
FX Premium held at higher end of set ranges of 6.25-6.50% (3M) and 5.35-5.60% (12M) and is nicely trending into the lower end. The near/short term undertone is bearish for test/break of lower end into 6% and 5.10% respectively on dovish monetary policy stance. The exchange rate play will provide tailwind to this move as forward market will be flooded with supplies with limited demand for dollars. For the week, let us watch 6.0-6.5% (3M) and 5.10-5.60% (12M). The strategy is to stay received at 6.50-6.65% (3M) and 5.60-5.70% (12M) for set objectives.
Equity market
NIFTY is nicely trading end-to-end of 5630-5730 range (low for the week at 5641 and high at 5721) before close at 5664 above the set immediate term support at 5660-5630. No change in view here as we continue to watch set immediate term support along with near/short term support at 5630-5580 with targets at 5750/5830 in the near term and 6330 before end of FY13. There are no strong cues to drive the market into bearish mode below 5630-5580 at this stage as RBI is expected to shift to pro-growth/pro-investment monetary policy stance and positive political developments for smooth passage of reform bills in the Parliament. For the week, let us continue to watch 5630-5730, extension limited to 5580-5830 with bias into higher end. The strategy is to stay invested at 5630-5580 for 5830-6330.
I am on leave for three weeks till 16th November 2012; would try to stay in touch through short updates on Twitter.
Moses Harding
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