DXY met bull-chase target while retaining bullish undertone
DXY chase from 84.50 to 89.50 is done with steady gains from 84.47 to 89.46. Despite the 500 pip rally since mid October, there are no signs of fatigue for deep correction with firm support from interest rate advantage and hope on US economic recovery much ahead of other developed economies. Despite near 6% bullish re-rating of the greenback in less than 2 months, carry-advantage which is expected to live through 2015 keep profit-booking sales light to stay in carry-play. What next? The undertone is bullish for extension beyond March 2009 high of 89.62 while 88.75 (ahead of 88.25) stay firm. Beyond here, 2006 high of 90.40-91.16 is pulled into the radar. It is not high risk to stay with extended chase with trail stop at 88.65; focus range for now is reviewed at 88.65-89.65/90.40/91.15 and good to play end-to-end.
EUR/USD failed thrice (1.2599/1.2531/1.2506) at higher end of set NT focus range of 1.2000/1.2100-1.2500/1.2560 posting lower low's while trying to pass through 1.2250-1.2350 intermediate support with low at 1.2271. Euro continues to be under pressure with immediate bias into July August 2012 low of 1.2040-1.2140 seen as near term protection zone, where short-squeeze relief (for Euro) should emerge. It is good to stay with the chase into 1.2050 watching immediate resistance at 1.2325-1.2350.
USD/JPY at striking distance of 123.50-125.00 set as target zone on start of chase from 105.00; high so far at 121.68. The tone continues to stay bullish into June-July 2007 high of 123.66-124.36 while above 120. Having posted sharp recovery in quick time, prefer near-term sideways price-stability at 118.50/120-123.50/125; break-out either-way tough to sustain.
In the last update, set near-term trading range for GBP/USD at 1.5300/1.5350-1.5700/1.5750 with intermediate support at 1.5560-1.5585. As per script GBP failed thrice at 1.5700-1.5750 (posting lower low's at 1.5743/1.5725/1.5695) to hit 1.5567. The tone continues to stay bearish with pressure on 1.5500 enroute to 1.5300-1.5350 before consolidation. It is good to be with the chase into 1.5500/1.5350 watching immediate resistance at 1.5600-1.5650.
Rupee rock-solid boxed between FII and RBI
As per script USD/INR is stuck in back-and-forth mode at set focus range of 61.65/61.70-62.20/62.25; since then saw 62.22 to 61.65 to 62.23 to 61.77. It was good opportunity for exporters to cover end Dec'14 to Mar'15 receivables at higher end for spot gains and time-decay; on the other side, it was relief for importers to hedge end Dec'14 liabilities at lower end (for end Dec'14 at sub 62.10 and end Mar'15 at sub 63.35) despite paying for time-value. What next? Rupee continues to stay nervous and at mercy of FIIs; at this stage, Rupee traction with USD strength is diluted thanks to FII inflows enroute to India equity and debt markets. Combination of extended $ strength and dilution (or reverse flow) in FII flows will be heavy on RBI Rupee support zone at 62.20-62.25; this risk can quickly open up 62.85-63.35 ahead of time. Stake-holders need to keep this possibility in mind that could trigger importer's fear and exporter's greed when month/year end lumpy $ demand will be in plenty. While retaining end 2014 spot target at 62.10-62.35 and end FY15 target at 63.10-63.35, can not wish away from downside risks on Rupee from FIIs when RBI's $ appetite is in plenty with the need for pushing its reserves from over $300 billion into $500 billion. All taken, retain medium term strategic base at 61.20-61.70 with short term risk into 62.85-63.35 (adjusting for time-decay) and beyond 63.32 (2014 Rupee low) if FIIs opt to switch side. Let us retain focus for rest of 2014 at 61.65/61.70-62.20/62.25; see it prudent for importers to stay risk-off at lower end and exporters in risk-neutral mode at higher end. It is not the time to stay over-weight on Rupee; caution!
Moses Harding
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