Global markets begin 2015 in cautious risk-off mode:
DJIA index opens the New year in cautious mode with steady undertone below strategic resistance zone of 17850-18100; close below 17850 is the sign of dilution in bullish momentum (and confidence) post the Q4/2014 rally from 15850-17350 to 18100. What next? There is nothing major to trigger panic; positive cues (and optimism) from US economy and extended monetary support from ECB (and other major Central Banks) will support to retain bullish undertone into 2015. There are concerns from China, Russia and Iran but not expected to be severe to cause economic and/or financial crisis as witnessed before! For the week, retain focus at 17350/17600-18100/18350 for sideways consolidation, with most trades likely at the inner-ring, and overshoot into outer corridors not expected to sustain.
US 10Y Treasury yield is down at lower end of set focus range of 2.10-2.35%; risk-neutral stance (and lack of clarity on the way forward) has resulted in multiple sets of back-and-forth moves, while overshoot (into the outer corridors) within set big-picture range of 1.95/2.10-2.35/2.60% didn't sustain for long. What next? For the week, retain focus at 1.95/2.0-2.20/2.25% and prefer back-and-forth moves while retaining the short term outlook for shift into 2.10-2.60% consolidation with bias into higher end.
Brent Crude extends weakness into lower end of set focus zone of 55/56.50-58.50/60 with no sign of dilution in bearish momentum despite sharp fall from over $115 into $55 since June 2014. While preferred near/short term trading range is seen at 55-60/65, do not rule out extended unsustainable weakness below $55. Given the fact that long term volatility was seen between 35-140 with most trades around $85-110 range, hedging demand should emerge at $35-55 to freeze the price-advantage over long term to avoid regret later in the event of value-adjustment back into 60-85 zone. All cues (and dynamics) taken, below $55 is cheap-to-acquire for long term perspective. For the week, retain focus at 55-58.50/60, not ruling out hedge-play at/below lower end and trading-shorts at/above higher end.
Gold is stuck at set focus zone of 1160/1170-1200/1210 with no major cues to trigger break-out either-way. However, short term bias into mid 2015 (ahead of FED clarity on rate-hike) is into the lower end of set strategic focus range of 1110/1135-1235/1260. For the week, retain focus at 1135/1160-1210 with bias into lower end.
DXY extend gains over 90.50 shifting into higher near/short term trading range of 90.00-92.50 with bullish undertone. USD retains economic and monetary advantage over the major economies in 2015-2017. For the week, retain focus in EUR/USD at 1.1875-1.2050/1.2100 and USD/JPY at 119.50/120-122; prefer sideways momentum absorbing short-squeeze before back into bearish trend.
India begins 2015 with nervous optimism
NIFTY sets up the heat with solid recovery from lower to higher end of set 8150-8400 consolidation zone. There has been good policy initiatives since May 2014; many see them as adequate in the 1st year of NaMo regime (against short of political majority in Rajya Sabha), while some see as limited actions (against loud noises and cosmetics touches). All taken, India is different since mid 2014 and seen as one of the best investment destination, next only to the mighty US! This optimism on the way forward will prevent the worst while looking for tangible (and effective) actions to trigger the best (for new high's); till then consolidation is the outlook and way forward! For the week, set focus at 8200/8250-8485/8535 with most trades likely at 8345/8370-8470/8495; near term big-picture at 8150-8485/8635. Stay neutral on push-back into 8150 against lower probability of sustainability over 8485.
India 10Y benchmark bond 8.40% 2024 is in back-and-forth mode at 7.75/7.85-8.0/8.10% within set strategic focus range; post the 7.78 to 8.03% moves, stability is established at inner-ring 7.85-7.95% range. What next? Risk-neutral stance against rate-cut expectation and "Gyaan Sangam" for transformation of PSU banks retain positive undertone for Gilts in the short term (into Budget 2015 and end FY15). While inflation and CAD headwinds are behind, concerns remain only on the ability to meet set fiscal deficit target. All combined, prefer stability at 7.80-7.95%; strategy is to unwind excess SLR (and trim duration of SLR) at/below 7.80% and good to stay invested at/above 7.95% retaining the big-picture at 7.75/7.80-8.05/8.10%.
USD/INR settle at lower end of near-term focus range of 62.85/63.10-63.85/64.10 post the sharp fall from 61.70-61.80 to 63.85-63.95 since 1st week of December 2014. Rupee is now supported by domestic optimism and retention of FII appetite, thus losing traction with USD gains elsewhere. As always, RBI steps in to administer price-stability to guard against excessive Rupee appreciation from hot-money FII inflows. Given this scenario and risk of sudden downside value adjustment of Rupee (latest seen in December 2014), it is prudent for importers to stay risk-off at lower end and exporters to stay risk-neutral retaining appetite for next step-down value adjustment against DXY gains over 90.00-92.50 trading zone. For the week, set focus at 62.95/63.10-63.45/63.60 and be fleet-footed end-to-end. Retain Rupee risk bias into 64.85-65.35 on extended USD strength and domestic setbacks. Long term hedging (and carry-trade) strategy is tuned in traction with 12M USD/INR value at 67.00/67.25-68.25/68.50; break-out either-way not to hold for long!
Moses Harding
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