DXY in bullish consolidation
Post completion of the 500 pip chase from 84.50 to 89.50 (from 84.47 to 89.55) in quick time since mid October, DXY into correction mode into set retracement target of 87.75-88.25 (low at 87.91) before consolidation at 88.25-88.75. What next? There are no cues to upset current bullish undertone of the dollar with firm undercurrent from both economic fundamentals and interest rate advantage. This sentiment stays valid to extend focus into 89.55-90.40 ahead of short term objective at 92.50-92.65. The risk to this outlook will be only from guidance on extended pause before FED shifts into rate-hike cycle; given the positive trending in US growth pick-up, delay beyond Q4/2015 is low probability. The strategy is to absorb correction into 87.60/87.75-88.25 (with tight stop at 87.50) for chase of next round of bull-run into 92.50.
EUR resilient but fatigue on recovery
Post the sharp fall from 1.2500-1.2550 into lower end of intermediate support zone of 1.2250-1.2350 (low at 1.2245), resilient Euro recovered in full into 1.2500 (high at 1.2494) before into sideways mode at 1.2350-1.2500. Euro corrective recovery post the 1.2885 to 1.2445 weakness (since mid October) is in order. What next? remember to have set up strategic base at 1.2050-1.2250 when we began the Euro chase from 1.3850-1.4000; since then (from May 2014), Euro is down from 1.3992 to 1.2245. Should we retain strategic support at 1.2050-1.2250 or look beyond 1.2040 to 1.1875? Economic fundamentals and market dynamics do support extended Euro weakness, and more clarity would emerge post the FOMC meeting! If there be any hawkish guidance from the FED with signals for shift into rate-hike cycle sooner than later, then it would be a big blow for the Euro. Given these cues in play, would continue to see near-term cap at 1.2500-1.2550/1.26 for pass-through into the lower end of 1.2050-1.2250. Till then, prefer sideways trading at 1.2250/1.2350-1.25/1.26 with most trades likely to be at inner-ring (ahead of FOMC) before gap-down break-out; temporary relief over 1.26.
JPY in sideways mode on profit-booking
The bullish pick-up from 117.00-117.50 fell short of 123.50-125 target for back-and-forth roller-coaster ride from 117.22 to 121.84 to 117.43 before consolidation at 118-119. Japanese exporters are seen to be thrilled to see weak JPY above 120 (last seen in July 2007) ahead of end 2014. Makes sense and prudent! What next? The underlying bullish undertone is firm with strategic base at 115-117.50 for 124.16 (high of June 2007) in 2015. It is important that the set strategic base should hold ahead of thin extended holiday market. When Japan continue to struggle on growth and giving great carry trade advantage, there is no sight of end of bullish momentum for the dollar in the short term. For now, let us focus attention at 117-122 within set big-picture at 115-125.
Rupee resilience broken by weak equity
The USD bull-chase from mid September low of 60.20 and mid-October low of 60.90 for end Dec'14 spot target at 62.10-62.35 has been done ahead of time; post that the operating range was shifted at 61.70/61.80-62.35/62.50 with call for exit of short $ book at 61.70-61.80 for reinstatement at 62.35-62.50. As per script, Rupee fell from 61.77 to 62.50 before weekly close at 62.29. What next? Strategic support for the USD is already reviewed up from 61.20-61.70 to 61.95-62.20 pulling the end Mar'15 spot target of 62.85-63.35 into near-term focus. Most cues have turned against Rupee from weak equity, strong dollar, ease in interest rate and now de-growth print in IIP; combined impact from weak growth data and ease in inflation against downside risk on equity and bullish momentum on the dollar is high-risk for Rupee; that's where market dynamics are at this stage exerting extreme downside pressure on Rupee. Not sure how aggressive RBI will be in defence of Rupee when noise for early rate cut gets louder and ugly! All taken, there is no cheer for Rupee bulls when lumpy $ demand in pipe-line ahead of month/year end. Let us keep focus at 61.95/62.20-62.70/62.95 widening the end Dec'14 spot target at 62.20-62.70, being prepared for extension into 62.70-63.20/63.35. Taking all these cues in play, it was urged to stay risk-off on imports (and $ liabilities) at 61.70-61.80 and turn risk-neutral on exports (and $ assets) at 62.35-62.50 keeping appetite for extended weakness into 62.85-63.35. Caution and tighten your belt for bumpy ride ahead!
Moses Harding
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