MARKET PULSE: Weekly report for 28 January to 01 February 2013
Exchange rate market:
USD/INR was boxed between set intra-week support at 53.10-53.35 and resistance at 53.85-54.10; initial rupee rally from 53.95 held at 53.37 for sharp reversal into 53.89 before close of week at 53.68. The strong bearish set up on rupee is indeed diluted. The major risk factors of downgrade in sovereign rating and high Current Account deficit are not very relevant post serious efforts to address concerns on twin deficits and to attract capital flows; dollar bulls have now revised the worst case (for rupee) to 56 from earlier expectation of 58-60 while rupee bulls have pulled 51 into the radar. MARKET PULSE had set rupee range for 2013 at 51/53-56/58 (51-56 on improvement in macroeconomic fundamentals or 53-58 on policy inaction) and had considered good to sell 3M forward dollars at/above 56.25 and 12M forward dollars at/above 58.50 with intent to cover exports on spot weakness into 55.10-55.60 and urged importers to stay aside to allow correction into 53.60-54.10. Since then, rupee recovered sharply from intra-2013 low of 55.38 to high of 53.37 in January itself; such is the swift reversal in sentiment triggering sharp rally in rupee. The “lows” of rupee seen in 2012 at 55.88-57.32 are seen to be firmly behind in the short/medium term while pulling 2012 high of 51.35 (seen on 7/10/12) into the radar. The near term trading range for USD/INR is seen at 52.60-54.10 for possible short term range play within 51-54. The pressure on spot rupee is gone with accelerated dollar supplies from the forward segment; high FX premium and rupee bullish sentiment will knock out dollar demand in the forward market. It would be an extended rupee bull-run on rate cut action from RBI. For the week, let us watch 52.85/53.10-53.60/53.85 with bias into lower end. The trading range for the week is expected to be at 53.10-53.85/54.10 (on pause mode) and 52.60/52.85-53.60 (on delivery of 25 bps rate cut). The strategy is to retain “short dollar book” and add on spot weakness into 53.85-54.10 (3M at/above 54.60 and 12M at/above 57.00). Strategic traders can retain “short dollar” book entered at 53.95, add at 53.60-53.85 for 52.60-52.85.
EUR/USD held strong above set short term support zone of 1.3200-1.3250 (low at 1.3263) and moved sharply into near term objective at 1.3485-1.3500 (high of 1.3479); after back-and-forth moves between 1.3250-1.3350. MARKET PULSE has set 2013 support zone at 1.2950-1.3150 and looked for intra-2013 rally into 1.43-1.45. Since then, EUR/USD posted low of 1.2997 (on 4/1/13) for 500 pip rally in the first month itself. What next? EUR/USD has now shifted into higher trading range at 1.3250-1.3800/1.4300; tone bullish into higher end. For the week, let us watch 1.3350/1.3400-1.3750/1.3800; bias into higher end. Strategic players can retain “long Euro” book and add at 1.3300-1.3400 (with stop below 1.3250) for 1.38-1.43. It is also good to add on break of 1.3550 which would set up extended bullish run into/above 1.38.
USD/JPY traded end-to-end of set near term range of 88-91 during the week; held strong at 88.03 for sharp rally into 91.19 before strong close at 90.90. It is an impressive (and strong) rally in USD/JPY since the September 2012 low of 77.11, pulling the 2010 high of 94.98 and 2011 high of 101.45 into the radar. MARKET PULSE has set intra-2013 objective at 92-95 but rally from 2013 low of 86.50 is strong (by 5.5% in less than a month). While it is easy to set targets in this one-way drive, it is tough to set support levels which can overshoot on profit-booking supplies. The near term range is now seen at 88-101 and looks good for another 10 big figures from current. For the week, let us watch 88.00/89.50-93.50/95.00 with bias into higher end. The strategy is to stay with bullish trend unmindful of extended correction and will be good to take monies off the table on move into 95 and allow deeper correction for re-entry.
Interest rate market:
10Y Bond traded end-to-end of set weekly range of 7.81/7.83-7.88/7.90; down from 7.81 to 7.89 before close of week at 7.88%. MARKET PULSE had set intra-2013 target at 7.65-7.80% with strategy to hold on to “long book” entered at 8.10-8.25% for 50 bps intra-year rally and urged not to chase gains below 7.80% for correction back to 7.88-7.90; 7.93-7.95 and possibly extended weakness into 7.98-8.0%. The correction process has now met the first objective at 7.88-7.90 with the second one at striking distance while RBI’s pause mode on rates can hit the third objective which should hold. Let us watch consolidation at 7.83/7.85-7.93/7.95 into the policy and thereafter into 7.80-7.95/8.0 trading range. There are three options on hand: consolidation at 7.79-7.84 on 25 bps rate cut; 7.90-7.95/8.0 on pause mode and extended gains into 7.65 on surprise 50 bps rate cut. Having ruled out 50 bps rate cut, post policy trading range is seen firm at 7.80-7.95. The trading strategy is to retain “long book” entered at 7.88-7.89%, add in 2 lots at 7.93-7.95 and 7.98-8.0 for 7.80%. Let us review short term strategy post RBI policy but believe 7.60-8.10 will stay good for rest of 2013.
OIS rates in consolidation mode at 7.50/7.53-7.57/7.60 (1Y) and 7.10/7.13-7.17/7.20 (5Y); there is no strong momentum for break either-way. Let us continue to watch consolidation within this trading range into the policy and thereafter into 7.48/7.51-7.62/7.65 (1Y) and 7.08/7.11-7.20/7.23 (5Y); into lower end on 25 bps rate cut and into higher end on pause mode. The strategy is to stay received at 7.57-7.65 and 7.17-7.23 (in 2 lots; one into the policy and the other to add post-policy rally, if any) for lower end. There may not be strong momentum for sharp reversal below 7.48% and 7.08%.
FX Premium traded in sideways mode at 7.25-7.50% (3M) and 6.10-6.40% (12M) on conflicts between interest and exchange rate play and urged to stay paid in 12M on dips into 6.10% while allowing consolidation play in 3M around 7.35%. The tone is now bullish on strong exchange rate play and neutral on interest rate play. For the week, let us continue to watch consolidation at 7.25-7.50% (3M) and 6.10-6.40% (12M) into the policy. The trading range for 3M is retained at 7.25-7.50%; into lower end on 25 bps rate cut and higher end on pause. There is risk of extended rally into 6.60% in 12M on pause mode or not below 6.10% on 25 bps rate cut. The post-policy trading range is seen at 7.25-7.50% in 3M and 6.10-6.60% in 12M. The strategy is to stay paid in 12M into the policy and add at/below 6.10% for 6.60%.
Equity market:
NIFTY traded end-to-end of 6000-6100; initial rally into 6101 met with unwinding on dilution in rate cut hopes but held at 6007 before strong close of week at 6074. MARKET PULSE looked for strong support at 5980-6005 to hold and retained the set near term range of 5980-6180. The intra-January 2013 rally from 2012 close of 5905 into 6101 is sharp (3.3% in less than a month) and it was not a surprise to see good selling interest at 6100. The undertone into near/short term is bullish; FIIs interest is there to stay while domestic investors absorb extended weakness to stay invested for rate cut rally. For the week, let us watch consolidation at 6020/6045-6100/6125 into the policy and thereafter at 6100-6200 on 25 bps rate cut or into 5980-6080 trading range on pause mode. The strategy is to retain “longs” entered below 6050 and add at 6000-5950 if seen for 6175-6200.
Commodity market:
Gold lost steam at the first hurdle at 1695 (ahead of set reversal objective at 1710 for 1625) for sharp pull back to 1655 before close of week at 1658. The near term trading range is firmly in place at 1625-1695; break either-way will be sharp for 1575 or 1755 with mild bearish undertone. For the week, let us watch consolidation at 1625/1640-1680/1695 and stay neutral on break-out direction but do not prefer to stay “long” at higher end. The strategy is to trade end-to-end with tight stop/reverse on break thereof.
NYMEX Crude extended its bullish undertone into set objective at 97.00-97.50 (high at 96.92) while holding above set support at 94.50-95.00 (low at 94.95) before close of week at 96.10. The tone is bullish for possible extension into 99.50-100.50 before sharply down while above 93.00-94.50. For the week, let us watch 93.00/94.50-99.00/100.50 with immediate bias into higher end. The strategy is to unwind “longs” at higher end and switch sides there with tight stop for sharp correction into 90; near term trading range now seen at 90-100 with test/break either-way not to sustain.
Have a great week ahead..............................Moses Harding
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