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Rupee gained 0.4% on a weekly basis; Dollar hits low note while Euro shinesCrude Oil(NYMEX) at current market(49.00) for a target of 47.75 EURUSD Ideas - Will the steep surge continue USDINR Ideas - Beware of the LullUncertainty of Events and EURUSDUSDINR Ideas - Rupee poised towards 62 or 66!! 3May17May Invokes Article 50USDINR Ideas - Deja Vu - 25Mar17USD/INR Outlook: Small correction before 64.80Silver: $17.00 target met and profit bookedCrude OilTime to pray for Nifty bullsWhat is Rupee up to?Silver: $18.00 target metMentha Oil-Upside open for 1070EURO Outlook- Consolidation ahead Article 50 and its impact on GBPUSD USD/INR to bounce back to 67.75-67.80USDINR Ideas - Nothing endures but changeGBP/INR : 85.50 target metEURO OutlookGBP outlook and key points from Prime Minister Theresa MayUsing Seagulls to hedge forex riskUSD/INR- Outlook Corporate dilemma over rising LIBORWhats with the rising LIBOR?Rupee loosing correlation with Yuan? - PART 2US NFP Preview: An action oriented day for currenciesJanet Yellen's Jackson hole speech reviewNifty outlook: Correction to 8330 possible USD/INR- Outlook Dollar Index (DXY)- Jackson Hole waiting gameAre Options the appropriate hedging instrument now?Crude Outlook: $44 target metEUR/USD: Running in a downward sloping channelJPY medium term reversalPound slides on BOE cuts and stimulas expansionUSD/INR- long term trendline holds Oil correction overExpectation from BOE meeting todayIs Nifty's optimism becoming EUPHORIC?Nifty's phenomenal bull run continues......CAUTION is still the keyRupee loosing correlation with Yuan?USD/INR- H1 Review and Outlook in H2 2016Will GBP/USD's Brexit Relief Rally Sustain Itself?USD/INR- Break out by July end-August Lull after the storm?Oil Outlook-$ 50 target met... Eyeing $55-$60 in medium term USD/JPY outlookEUR/USD: Dollar hammered as payroll disappointsCaution in Nifty's phenomenal run!!USD/INR- Under Cup and Handle formation??USD/INR :66.85-67.75 level intactUSD/JPY outlookEUR/USD may extend fall to 1.1050-1.11 in coming few daysUSD/INR :67.10-67.20 target metDollar Index (DXY)- Dollar boosted by Hawkish Feds speakBOE warns Brexit could lead to sharp slowdown in UK.Lull before the storm?Gold-$1300 target metWill Nifty's impressive bull run continue?Euro's next move is lowerEuro's next move is lowerExtracts from FOMC meeting minutes GOLD - Start of bull run?Does rupee follow monthly seasonality?USD/INR-Short term reversalCrude Outlook: Way to 6th weekly gainRupee's moves making headlines - RETURNSRupee's moves making headlinesUSD/INR OutlookCrude Outlook: WTI Reversal from here for $40+Has Crude prices taken a turn?USD/INR OutlookCrude OutlookRuble :more weakness ahead this yearGold Outlook-1040 target met USD/INR Outlook-Temporary top formed, direction to 67.10-67.15 levelsDollar Index (DXY)-Looking for break out-Will ECB meet today be the trigger?USD/INR OutlookGold is looking bullish for near term Is Nifty (India) the bright spot?USD/INR Outlook- 2016Gold OutlookEURO short term recovery expectedGBP -Recovery from herePossible outcome of the FOMC meetingEURO OutlookNifty outlookUSDINR-OutlookUSDINR Technicals - Double top resistance at 66.90EURO OutlookTime to buy Nifty CallsUSDINR-65.60-65.70 target metNifty outlookUSDINR-breaks 65.18-65.25 rangeEURO breaks 2015 trendlineDollar Index (DXY)- Reversal as expectedTime to buy Nifty PutEURO outlook- Dovish comments hammers EURUSDINR-Double bottom formation?Vanilla Options are quite cheap nowUSDINR-Reversal happenedNifty - 8200 target met and reversal as expectedDollar Index (DXY)- Trend reversal??USDINR-reversal anytimeBig dollar support at 64.80 - 65.00Nifty outperforming??Vanilla options better than forwards - PART 2Vanilla options better than forwardsSell USD/INR for a target of 65.60 stop loss 66.52EURO outlook- profit bookedNifty outlookDollar Index (DXY)- On way to 93.50EUR /USD- Bullish momentum buildingGBP/INR outlookHas Rupee lost its value??USD/INR accumulating momemtum for 64.50 levelsFocus back on Greece negotiation and German yieldsHawkish tone from RBI dented market expectationEuro/USD selling pressure to continue under 1.1050

Rupee gained 0.4% on a weekly basis; Dollar hits low note while Euro shines

Posted Date:-09-Sep-2017

 Weekly Synopsis

 

Date:- 09th September 2017

 

Markets from 04th September 2017 to 08th September 2017:-

 

Indian Rupee:-

 

  • Indian rupee rose yesterday against the dollar for the week, helped largely by Friday’s largest single-session gain in over a month, as the greenback weakened after the European Central Bank hinted at a decision on scaling back its monetary stimulus programme in October. For the week, the rupee gained 0.4% against the greenback, its largest weekly rise since week ended Aug. 4. The rupee closes on Friday at 63.78 against the previous weekly close of 64.02 on September 01st, 2017 to a greenback. It trades in a weekly range between 64.2625 to 63.78 against the greenback.

 

  • India's foreign exchange reserves rose for a second consecutive week to another record high of $398.12 billion as of Sep.1, from $394.55 billion in the previous week, the central bank said yesterday. The increase was driven by a rise in foreign currency assets to $373.64 billion from $370.83 billion in the previous week, according to the data from the Reserve Bank of India.

 

Global Market:-

 

  • The U.S. dollar hit a more than 2-1/2-year low against a basket of major rivals on Friday on reduced expectations for another Federal Reserve rate increase this year, while the euro hit multi-year highs in the wake of a European Central Bank meeting.

 

  • New York Fed President William Dudley, while saying in a speech Thursday that the central bank should continue gradually raising U.S. interest rates, sounded slightly less confident than in his previous hawkish comments. The tone reduced demand for the dollar and helped knock the greenback to a roughly 10-month low against the yen to 107.33 yen. Concerns over the impending short-term impact of Hurricane Irma on the U.S. economy also weighed on the dollar.  The dollar was last set to drop 2.2 percent against the yen for the week to mark its biggest weekly percentage decline in about 13 months.

 

  • The euro rose as much as 0.6 percent to its highest since January 2015 of $1.2092. While the euro pared most of its gains, leaving it roughly flat against the dollar at $1.2027, it was on track for a weekly gain of 1.4 percent, putting it up more than 14 percent this year against the dollar.

 

  • ECB President Mario Draghi's comments Thursday did little to deter euro bulls, and a Reuters report that central bank officials were in broad agreement that their next step would be to reduce their bond purchases also supported the currency.

 

  • U.S. shares were mixed, with the S&P ending slightly lower as investors braced for Irma and fretted that Pyongyang could launch another missile test on Saturday, North Korea's founding day, keeping risk appetite in check going into the weekend.  The Dow Jones Industrial Average rose 13.01 points, or 0.06 percent, to end at 21,797.79, the S&P 500 lost 3.67 points, or 0.15 percent, to 2,461.43 and the Nasdaq Composite dropped 37.68 points, or 0.59 percent, to 6,360.19.

 

  • European markets finished mixed as of the most recent closing prices. The DAX gained 0.06%, while London's FTSE 100 was off 0.26%. Shares in France were unchanged with the CAC 40 at 5,113.49.

 

  • U.S. crude prices tumbled down more than 3 percent on Friday worries that energy demand would be hit hard as Hurricane Irma, one of the most powerful storms in a century, headed toward Florida and the Southeast. Irma, the second major hurricane to approach the United States in two weeks was forecast to slam southern Florida on Sunday. It has already killed 14 and destroyed islands in the Caribbean, with Hurricane Jose heading for the Caribbean Leeward islands, close on the heels of Irma.

 

Local Market:-

 

  • Indian indexes ended slightly higher on Friday led by shares of some metals firms as commodity prices rallied, but the unease in global markets about North Korea put a lid on gains.

 

  • The BSE index  ended 0.08 percent higher at 31,687.52, while the broader NSE index  closed 0.05 percent up to 9,934.80.

 

  • Both indexes, however, ended the week lower, snapping a third weekly run of gains. For the week, the NSE and BSE ended 0.40 percent and 0.64 percent lower respectively.

Crude Oil(NYMEX) at current market(49.00) for a target of 47.75

Posted Date:-08-Sep-2017

Crude Oil(NYMEX):- The crude oil is trading at its major resistance zone. On a daily chart a downward sloping trend-line is applied to the peaks, ranging from 55.00, 53.73, 50.40, 50.19 and 49.39 which is showing the highs are getting lower. We suggest to sell the oil at current levels.

Trade Idea:- Sell Crude Oil(NYMEX) at current market(49.00) for a target of 47.75 with a safe stop-loss of 49.50.

Good Luck...!          

EURUSD Ideas - Will the steep surge continue

Author:-Mr. Ritesh Victor

Posted Date:-04-Aug-2017

Euro’s rally in the last 7 months has been nothing less than spectacular – soaring 13% since the start of this year. Quite surprising for a currency that was widely talked about reaching parity to the US dollar around the latter part of 2016. Well, euro parity to US dollar was largely speculative and a ‘market excess’ (had regularly shared this view with all my market participants). My sense for EURUSD near 1.19 is quite similar – just that the direction is reverse – it has become a ‘market excess’.

 

Analyze the following facts before we become euphoric about euro (just like we were euphoric about dollar some 8-9 months back).

  1. As per the latest GDP growth rates, US clocked a 2.6% growth while the large European nations (Germany, France and Italy) are growing at 0.5% - 1%.
  2. The US Central bank has increased interest rates thrice (Dec’16, Mar’17 and Jun’17) while ECB is still persisting with interest rates close to zero.

 

Considering the above, do we really need to debate what looks more promising?

Beyond growth rates and market economics, euro’s gain looks more on the account of dollar’s weakness than euro’s strength (courtesy dramatic exits from Trump’s administration and various allegations/investigations about Russian role in Trump’s win).

 

Well Mr. Victor, markets have rewarded the euro. What do you have to say to that?

Too large a reward now, akin to the severe penalty 8-9 months ago.

 

Technically, euro is largely overbought. Momentum indicators provide adequate evidence. Upward moving trendlines on the daily charts are getting steeper and steeper – notice the blue coloured lines in the chart below. Another indication of a euphoric state. In liquid financial markets, euphoria does happen, but rarely sustain.

Euro has outperformed its European counterparts, namely British Pound and the Swiss Franc, by a big margin. Have a look at the rebased chart below. Notice the red line (Euro) along with the green line (Swiss Franc) and the grey line (British Pound). Another comparable asset to Euro that has matched its gain is Gold (XAU) – the blue line. 

My sense is that the euro’s gain has overrun. Levels around 1.19 and the big whole figure of 1.20 are critical long term resistances. Sell EURUSD for a target of 1.14 – 1.15, stop at 1.2020.

Euro exporters should hedge their receivables around 75.50 – 75.80 range.

USDINR Ideas - Beware of the Lull

Author:-Mr. Ritesh Victor

Posted Date:-22-Jul-2017

Wow, what a market!! Beware of the lull.
 
Initially, it shakes and jolts you with bouts of excessive volatility (please recall the explosive moves between 66.30 to 68.80 in Nov/Dec’16 and from 68.40 to 64.40 in Feb/Mar’17) – when levels changed dramatically within a few days (and sometimes within a few hours too). Everyone was praying for stability (or more appropriately put, sanity) to return.
 
The current times are the reverse – everyone is begging for volatility (and sanity to return) – rupee is stuck between 64 and 65 for more than 3 months. Traders are having unusually long nap sessions – obviously, nothing much to work for. As the old saying goes, 'When the VIX (volatility) is high, it's time to buy - when the VIX is low it's time to go'. In other words, when fear is rising and peaking, it is time to close your eyes and just buy. Conversely, a low VIX implies complacency and lack of fear - a bold ego that says I have nothing to worry about, stocks are going up always.  Often a bad move, because once the buying stops there is nothing left but sellers - then corrections (often painful ones) ensue. Complacency tears down the market equilibrium – in current USDINR situation, certain group of market participants (exporters) generally hedge and the other group (importers) are reluctant to hedge. One sided positioning has become extreme – perfect recipe for an explosion in volatility – not a good sign, drive carefully.
 
In the last 3 months, rupee has been immune to a lot of otherwise market moving (volatility creating) events and news. Asian currencies had weakened and then recovered – no impact on rupee. EURUSD and GBPUSD surged higher (and dollar index plummeted) – still minimal impact on rupee. Indian equities are soaring to all-time highs – no impact on rupee either. This tends to indicate that Rupee is becoming more of a managed float exchange rate – resistant to volatility creating news and events. How long will this last? Not very long. 
 
On the daily USDINR technical charts, Bollinger Bands (a good volatility indicator) have narrowed considerably in the last 2 months – option volatilities are at multi-month lows. Historically, we have often seen explosion of market levels after prolonged periods of stability. BEWARE of the LULL.
Dr. Forex prescribes (Rx)
Exporters: For short term (1-3 months) – do vanilla options – premiums on such short term options are at their cheapest levels. For long term positions (6-12 months) – keep selling dollars on every uptick towards 64.60-80, to encash on forward premiums.
Structured options also look to be a good bet now. For 6 month maturity, Buy USD Put at 65 and Sell USD Call at 66.60 comes at 5 paise cost. Similarly, for 12 months, Buy USD Put at 66 and Sell USD Call at 68.50 cost 10 paise.
Importers: Please hedge 50% for short term (1-2 months). Despite the reluctance to hedge due to low volatility, it makes sense to hedge around 64.10-30 levels. Consider doing vanilla options to diversify risk, since option premiums are so low.

Uncertainty of Events and EURUSD

Author:-Mr.Ritesh Victor

Posted Date:-16-Jun-2017

What an eventful week it has turned out to be!! Especially for UK, as it went into deciding their next Prime Minister on 8 June 2017. What followed was wild swinging of fortunes between the Conservatives (led by Theresa May) and the Labours (led by Jeremy Corbyn). May won the elections but lost the majority. The effect was felt on GBPUSD (naturally, it had to) - collapsing 250 pips (2%) in five minutes, as soon as indications came in that the Conservatives will probably not get a majority. UK elections completely over-shadowed the other critical economic event, European Central Bank's monetary policy announcement. Although they kept the interest rates unchanged, they cut their inflation forecast this year from 1.7% to 1.5%. The central bank raised its growth forecasts for the next year, saying it now expects GDP to rise by 1.9% this year, up from 1.8% expected back in March.


In my sense, two conclusions can be drawn from the above events:

  1. 1. Euro will probably remain stronger than Cable (GBP) - after May's disappointing results, Britain will not get a hard bargain on BREXIT negotiations from Europe. The effect could remain for medium/long term. Buy EURGBP.

  2. 2. Do exit polls really work? At least three big global events have proved otherwise. BREXIT (when polls predicted BREMAIN by a thin margin), Trump's win in US (Clinton was the polls favourite) and now the UK election results.
  3. Market participants need to recognize that such events can lead to excessive market volatility which in turn could have a substantially adverse impact on their receivables/payables. It makes sense to remain adequately hedged ahead of such events.


    Enough of gyaan. Let's come to markets now.


    Even though I'm bullish on EURUSD, technically, a short term correction could be seen. Check out the daily chart below. Euro had traded sideways between 1.04 - 1.08 for 5 months, before breaking beyond the 1.08 - 1.09 resistance. The French election results (23 Apr and 7 May) were the trigger and it surged higher towards 1.11 - 1.12. Macron's election not only silenced French exit (from EU) supporters, it also comforted the markets that EU disintegration in more on peoples mind than in reality. Subsequently, the resistance around 1.1250 - 1.1290 held strongly. Technical indicators are looking overbought and there are visible divergences on Slow Stochastics and RSI. The reliable MACD has given a sell signal too.


    My sense is that Euro could correct a bit, at least towards 1.09 - 1.10 before resuming the uptrend. If Euro breaks above 1.1320 and forms a fresh short term peak, then my assessment will be annulled and will tend to indicate that something else is conspiring.

USDINR Ideas - Rupee poised towards 62 or 66!! 3May17

Author:-Mr. Ritesh Victor

Posted Date:-03-May-2017

What a fantastic roller coaster ride it has been for the rupee!! What a rush!!

Dollar was sold (and rupee bought) as if there is no tomorrow. Multi-year dollar supports tumbled like a pack of cards on ice. Rupee broke levels as if exchange rates were just another number. Equities surged and euphoria never had a better time.  

Should we exercise caution or continue to bask in India’s growth story glory? My suggestion- prepare for the former and hope for the latter.

In this exuberance, consider the following facts:

  1. FII inflows (one of the primary drivers for rupee gain in March’17) have slowed down significantly in April’17. From $8.6 bn (equity + debt) in March’17 to $3.5 bn in April’17.
  2. A few Asian currencies {namely Korean Won (green line) and Japanese Yen (yellow line)} had gained along with the Indian Rupee (pink line) in Feb’17 and Mar’17. These currencies have weakened subsequently in Apr’17 – Rupee did not. In this entire episode, Chinese Yuan (purple line) (which has had a good historic correlation with Rupee) has not gained at all. Clearly, Rupee looks like an outlier among the Asian currencies – check below the rebasing chart of Asian currencies. Will Rupee’s outperformance continue? TIME WILL TELL.
  3. Rarely has Rupee gained to such an extent in such a small period of time. Further gains will not only destroy export competitiveness (if anything is left now), it might also compel our big daddy (the RBI) to act (intervention to prevent rupee gains).
  4. Technically, dollar has been oversold (and rupee overbought) since mid Mar’17. Rarely has liquid currencies been overbought or oversold for such an extended period of time.
  5. There were long standing up-gaps in USDINR daily prices. Notice the blue and pink horizontal lines in the chart above – check the price gaps at 63.91-64.03 and 64.27-64.55. These gaps have been filled. Any more technical interest for further rupee gains?? Doesn’t seem so.

Importers: please hedge. Use forwards and options both. Certainly consider vanilla USD Call options if you feel more rupee gains are in store.
Exporters: have been regularly suggesting to do USD Put options. Continue doing so.

All market participants: start doing options (if you haven’t started already). Now is one of the best times to do it. An option has a cost to pay – a sacrifice which will certainly be worthwhile.  A few options along with simple forwards work best in all market scenarios (especially now when uncertainty is at its peak).

May Invokes Article 50

Author:-Mr. Dilip Mathew

Posted Date:-29-Mar-2017

May Invokes Article 50; What To Look Out For In The Future?

I would urge readers to read the earlier article titled ‘Article 50 and its impact on GBP/USD’ dated February 10, 2017 before reading the below article. As mentioned in the earlier article, the Article 50, which was never really intended to be invoked by those who made it, will finally be invoked for the first time by the British Prime Minister Theresa May on May 29, 2017. Once Prime Minister May submits the letter to European Union (or EU) President  Donald Tusk, the onus will be on the EU to come back with the draft guidelines on how the negotiations will take place as the United Kingdom exits EU. After the Article 50 is officially triggered, the Brexit Secretary Mr. Davis is scheduled to publish ‘The great repeal bill’, which will bring to an end the validity of EU laws in UK.


Pound falls by nearly 1% in the last 2 days

The Pound to US Dollar currency pair (GBPUSD) reaction to the news was pretty much similar to what we had forecasted with the pair falling from a high of 1.2556 in March 27 to a low of 1.2412 on the day of the triggering of Article 50.The GBPUSD pair lost more than 1% in the last two days.

The Pound to Rupee has also taken a fall with the pair which was trading at 84 levels, when our first article was published on February 10th, falling to 80.618 as on March 29. Over the last two days the GBPINR pair has lost nearly 1.25% (courtesy also a declining USDINR pair).

The Major events and timeline towards the Official Exit

The acceptance of the Brexit letter by Tusk will begin a 2 year process, which can be extended if EU and UK agrees unanimously, which would see UK leave the European Union on March 29, 2019.  Now let us look at what would be the major events which could have a major impact on the exit process and the currencies in that time frame. 

Leaving the EU involves a vast amount of negotiations, firstly it will involve the divorce or exit talks which would be meant for a smooth exit and secondly they will also need to negotiate the nature of any future relations between the EU and the UK. Theresa May has repeatedly said that she wants both negotiations to happen simultaneously, though the member states of EU might decide to take a sequential approach to the exit and future trade negotiations.  Given the complexity of the negotiations, the target of October 2018 to complete the negotiations might be hard to achieve which may further delay the other proceedings.

The scheduled French and German elections later in the year are also expected to have a major role in the negotiations. Some political parties have portrayed themselves as pro towards exiting EU as part of their political campaigns. So if Britain gets a smooth exit from the EU, it would mean other countries might also go down the same path which would be catastrophic for the EU. This will force EU to make Brexit as tough as possible, thereby subsidizing any other countries’ hopes of following the British path. Even without EU trying to make it tough, getting a unanimous deal from the 26 member countries in EU is a hard task by itself given the mere two year timescale, though not impossible.

Looking at the possible impacts on GBP and EUR, we would be able to see a strong comeback in the pound if the negotiations happen smoothly in favor of Britain and the final exit happens as per timescale. Inversely, the Euro could be in for gains if the negotiations result in a hard Brexit with terms heavily favoring the EU, but within the scheduled timescale, which could force any other country from even thinking of leaving the EU. The worst case scenario would the negotiations gets delayed and uncertainty prevails in the market, which could result in a fall in both pound and the Euro.

USDINR Ideas - Deja Vu - 25Mar17

Author:-Mr. Ritesh Victor

Posted Date:-25-Mar-2017


Wow, what a market!!
 
First, it lulls you into hibernation with prolonged periods of sideways movements, and then suddenly, you get shocks of sharp rupee appreciation in small periods of time. Time and again, it proves all the market pundits wrong That leads to commonly debated questions (quite rightly so), ‘why forecast at all?’, ‘focus on business, not markets’, etc.
 
Well, BJP’s overwhelming victory in UP has silenced (or, is ‘eliminated’ the right word?) all the dollar bulls in the country. In the consequent euphoria, rupee soared 2% in 3 days. There are a few interesting things to ponder around the recent rupee surge:

  1. After touching an all-time low of 68.8650 on 24 Nov’16, rupee recovered gradually to close at 66.60 on 10 Mar’17 (last working day before the election results were announced) – a handsome recovery of 3.3% in 3.5 months. Since then, rupee has gained a further 1.7%. As such, rupee is 5% stronger now than just 4 months back (quite unusual gains, isn’t it?).
  2. Fundamentally, nothing has substantially changed in this period of time to warrant such sharp rupee gains. One should read between the lines to recognize who has driven this move – perception or reality.
  3. Markets are discounting a scenario that BJP has already won the 2019 general elections – an event that has more than 2 years to go. BJP might, most probably, win – but believing that 2 years ahead will be a cakewalk for Indian and Global financial markets is a far-fetched illusion.
  4. For the week after BJP swept UP, the total net FII inflows (debt + equity) were close to $2bn – rupee gained 1.7%. For the current week, the total net FII inflows (debt + equity) were again around $2bn – rupee gained a meagre 0.07%. Making sense??  

In the beginning of calendar year 2014, Indian financial markets started getting a sense that BJP led NDA will come to power in May 2014. As such rupee started gaining as 2014 dawned. It surged from 63-64 to 58.30-58.80 in May’14. Observe the chart below. What happened to rupee in the next 6 months after BJP took office is common knowledge – it weakened back to 63-64.
 

BJP’s winning UP is akin to Modi’s re-election as PM. As such, rupee has gained from 68.00-68.50 to the current levels around 65.30-65.50. What will conspire in the next 6 months? Will history repeat itself – Deja Vu?? 
 
What to do now?
Importers: don’t think you will get a better level to hedge – rupee is at its strongest level since Oct/Nov15.
Exporters: consider doing USD Put options. Now is one of the best times to do it. Learning and executing options will certainly be worth the investment.
 

USD/INR Outlook: Small correction before 64.80

Author:-Mr. Nitesh Sharma

Posted Date:-18-Mar-2017

 

It has been a classic run for the rupee bulls from 66.90-65.25 in a span of 5 working days on account of BJP’s historic win in the UP elections. The victory is seen emboldening him to undertake more economic reforms and lure foreign funds to India as it moves to majority in Rajya Sabha( complete majority in 2019) and ensuring a stable government for next 7 years. The UP election has been precursor to the 2019 election and it’s expected that 2019 election results will be in favour of BJP to a larger extent then seen in 2014.But to lot the most surprising has been the  muted response to this week’s surge in the rupee suggests policy makers have grown more tolerant of currency gains?

 

Frankly speaking and sincere speaking this move is not at all a surprise to me where I had cautioned lot of my clients who were in regular touch with me for a likely break of 66.10 which was a strong support .A move to 65 was possible only on a  break of major support of 66.10 which is history now.

 

Off late two extreme views are prevailing in the market and I am getting calls from the corporate sharing their view which is very interesting. Few are saying rupee will slip to 60 by year end while other argue a point that rupee had depreciated  from 58-62 levels post modi when he was elected in 2014, hence scenario will be the same now. Its more interesting to see now banks have revised down their year end target for rupee from 6950 earlier to 68-68.50 now. Well  its anybody’s guess what the year end closing can be. Some will win and some will loose.

 

Not many remember that the situation may not the same then and before. Back in 2014 RBI had enough room to intervene and major reason rupee weakened back in 2014 post Modi win in lok sabha election was RBI.I had never seen such strong intervention during that time from any central Bank which lead to our FX reserves to scale up from $275 to $310 during that period and rupee weakened from 58.50 levels to 62 levels.

 

In current scenario while the central bank was said to have purchased dollars in each of the past three days, the intervention has been far less aggressive given the currency’s move The reason is quite simple  dollar-buying will boost rupee liquidity at a time when India’s banking system is already flooded with cash post Modi’s demonetisation. In my sense  RBI is possibly allowing the rupee to appreciate with the aim of controlling imported inflation. Its less aggressive intervention is also guided by the fact that it wants to prevent too much money sloshing in the banking system.”

 

Indian banks had about 5.1 trillion rupees ($77.8 billion) in surplus funds as of Wednesday, close to the record 5.5 trillion on March 6 That’s after Prime Minister Narendra Modi’s shocking November decision to ban high-value currency notes saw citizens rush to banks to deposit cash.Consumer prices in India rose 3.65 percent in February after easing for six consecutive months as food costs climbed. A panel led by Patel last month signaled an end to the monetary-easing cycle.

So what other alternative will the bank have .Intervention via the forwards market is one way the central bank could look to curb currency gains without having to worry about boosting banking liquidity. Under this method, the RBI typically enters into sell-buy swaps with banks, whereby it sells the dollars bought in the spot market and simultaneously offsets the position by buying dollars in the forwards market. This pushes back the liquidity injection to a future date.In  my sense RBI will be using the forward intervention strategy. We all know that  RBI has maintained it doesn’t target a specific rupee level and intervenes only to curb undue volatility in the currency market

What’s now on the chart?

As seen on the chart a Doji has been formed on 16th of March which indicates the nervousness and confusion on the market at current levels.If the same is seen along with momentum indicators which are highly oversold it is not wrong to expect a correction from here. Any correction from here will find first resistance around 66.10 levels ( a 23.6% Fibonacci resistance of 68.8650 to 65.23)  followed by 66.61(38.2% Fibonacci retracement) from where I expect the selling to resume to eventually move towards 64.80 in a quarter or so. Euro will encounter strong resistance around 1.08 and can fall back to 1.0640 which support our argument that rupee may bounce back in the short run but I will continue to stay bullish in the medium to long term.Every bounce back will be an opportunity to sell for long term.

Not many would remember my mail which I had sent on 5th September on my monthly FX newsletter which said out Rupee trend reversal ( though even I wasn’t sure then), the extract is below:

At times and infact most of the times it happens that once the market has corrected by 5-10% then we actually realize the peak is behind us  and market has actually reversed. I fear we do not face this situation in case of USD/INR pair also. I know all of us is tracking this trend line and if we see the long term trend line on the chart than I think we are quite close to breaking it or it has already broken it which I am not sure. As seen on the chart below I have shown a quarterly chart and a monthly chart and seeing the monthly chart it seems the trend line is broken, (again I am still not sure).While fundamentally even with FCNR repayment knocking at the door, Yuan devaluation , Dollar global  strength, the pair is held bound not to go above 67.25 mark and now with  NDF quoting below 66.70 , chances  of 66.10 looks likely. It is prudent for exporters not to chase too much gain and stay hedged while importers delay their hedges till we are clearer on the market trend. Good levels to sell will be 66.75/66.85/67.”

Silver: $17.00 target met and profit booked

Author:-Mr. Nitesh Sharma

Posted Date:-14-Mar-2017

As per my last mail sent on 15th Feb as shared in trail mail I had expected a correction in the silver from the 18.10-18.20 mark for a target of $17.00.We booked profit at $17.00, an annualized return of 70% in one month. Similar to its richer cousin, gold, silver has seen a sharp relief rebound for the first month-and-a-half of the year, rising more than 12% since the beginning of 2017. In fact, silver's performance during this time period has substantially eclipsed that of gold. Hence a correction around 18.20 mark was very likely. Silver made a high of 18.48 on 27th Feb and thereafter it has corrected by 8%.

As seen on the chart if the current levels of 16.85-17.00 continues to hold even after Fed meeting tomorrow a move towards 17.50-17.60 cannot be ruled out where I would expect the seller to re enter at those levels to push it down back to 17.00-17.20 levels or below. On the downside the break of 16.85 mark will be required to push the levels down to 16.30-16.40 levels before reversing again. Broader range in the near term looks to be 16.50-17.50  with unlikely to sustain beyond these ranges.

Crude Oil

Author:-Mr. Dilip Mathew

Posted Date:-14-Mar-2017

The Sentiments Behind Recent Sharp Movements In Crude Prices

Since December 2016, the US crude oil futures prices had been on the rise. In December, the US crude oil futures prices posted strong gains despite having fallen to a low of 48.98 in early part of the month. The first quarter of 2017 saw crude rise to a high of 55.24 and it managed to stay above 50 on a consistent basis. Things changed on March 9th as crude fell below 50 for the first time in 2017. In this article we intend to discuss the causes of the sharp movements in crude over the last three months and also will shed some light on what we can expect from Crude prices going forward.

The OPEC Landmark Deal and Implementation

November of 2016 saw a revival in crude oil fortunes as the OPEC (Organization of Oil Exporting Countries), carved out a landmark deal which saw the members agree to cut their production by nearly 1.2 million barrels per day for six months and to freeze production at 32.5 million barrel per day. Russia also joined in the production cut deal as they agreed to cut down production by 600,000 barrels, making the overall production cut reach 1.8 million. The crude oil prices reacted positively to the deal as the markets factored in the fall in supply causing the crude oil futures rising by a staggering 8.66% in December.

This was followed by a month of uncertainty as markets were waiting for the first report on production details to come out which will give a clear indication as to if the deal was getting implemented. The innate nature of OPEC’s lower compliance to the production deals over the years added to the uncertainty, causing the crude to fall by 1.69% in January.  

The detailed report on how the OPEC members performed in terms of compliance to the deal came out towards the end of February.  The report indicated that OPEC managed to achieve a strong 94% compliance in the first month of the agreed production cut deal. This was the first ever time that OPEC achieved over 90% compliance level on a production deal. The confirmation of the active implementation of the deal by the OPEC saw crude oil futures prices rise by 2.27% in February.

US Shale Kills the Oil Rally

The US shale oil industry has been in precarious position over the past year as the fall in crude prices made it almost unviable for them to ramp up production. Putting it in simple terms, the shale oil production is a costly affair, and it was profitable when crude was at $100, but with crude at $50 the investments made to produce shale was hardly breaking even. So much so that the fall in price of crude oil was engineered by the OPEC as a way to counter the US shale which has a much higher cost of production than the cost of production for OPEC countries.

Now with the rise in crude oil prices the US companies also ramped up the production which resulted in a global supply glut despite the supply cuts by OPEC. On March 8th, Crude oil futures prices fell by 5.38%. This was followed by another 2% fall on March 9th, as crude went below $50 for the first time in 2017. 

The sudden market reaction was due to the release of US crude inventories data which raised question marks as to if the OPEC led supply cuts would be enough to reduce the global supply glut. The data release indicated that crude oil inventories in US, world’s largest consumer of oil, rose by 8.2 million barrels in the week ending March 3rd to a record 528.4 million barrels.  This was nearly 4 times higher than the market expectations of a modest rise of less than 2 million barrels.  The US crude inventories which keeps on swelling certainly raises doubts over if a long term bull run in possible in the Crude oil prices.

Was it an overreaction?

Is the stockpile rising by 8.2 million barrels enough to warrant a fall of nearly 8% in crude future prices? The markets seems to have overreacted to a single report release. With the short term bull run that crude was on, any negative news would have caused a major correction. This seems to be that correction. After all, the inventories had risen by 10.4 million in the same month last year.  A part of this rise is also seasonal, as with summer setting in the demand for heating oil will usually come down during this time of the year, which would also have an impact on the inventories. We think that this correction would be short term and there would soon be a retracement in the cards.

Time to pray for Nifty bulls

Author:-Mr. Ritesh Victor

Posted Date:-08-Mar-2017

Nifty has witnessed a relentless rise since late Dec’16 – from a low of 7894 (26 Dec’16) to the latest close of 8924 (8 Mar’17) – superlative absolute returns of 13% in just about 2.5 months. Are Indian companies really doing so well?? Quarterly financial performance (Dec’16) of Nifty companies were mediocre (moderate, at best). Foreign Institutional Investors have pumped in just $1.8 bn since start of this year. So, what is actually driving Indian equities?? Global equities rally - possibly yes. UP election results – possibly YEEESSSSSS!!!!! Such a rally certainly suggests that markets are pricing in a BJP elected government Great, good news priced in. What happens if there is a fractured verdict? Are the markets prepared for any other news?? TIME WILL TELL.

Enough of scenario analysis, what do the charts indicate?

A first look suggests a double top formation – current peaks around 8950-8990 were resisted in early Sept’16 too. Remember, 8950-8990 was resisted in late Jan’15 also. Nifty briefly broke above that resistance to touch an all time high of 9119 (4 Mar’15); but swiftly retraced to witness a substantial decline in the subsequent months. So effectively, it is a long term triple top formation. What I am trying to suggest is the criticality of the long term resistance of 8950-8990 region.

There are visible up-gaps in the current Nifty rally (observe the green horizontal lines) – first gap at 8294-8322 (10/11 Jan’17) and the second at 8784-8804 (16/17 Feb’17). Momentum indicators are in the overbought territory and there are visible negative divergences on MACD and Slow Stochastics.
I feel Nifty has run too long a rally without any realistic correction. My sense is that Nifty could witness a decline to fill the price gaps – first target 8750-8800 and second target 8280-8330. If Nifty breaks above 9100 and forms a new all time high, my assessment will be rescinded and will indicate that something else is conspiring.

What is Rupee up to?

Author:-Mr. Ritesh Victor

Posted Date:-15-Feb-2017

Had articulated my mind about USDINR direction on my research (USDINR Ideas – Nothing endures but change) dated 3 Feb’17 (am sure you would have received a copy). I had sensed that rupee gains will stop around 67.10-30 – obviously markets didn’t have to agree with me and rupee touched a high of 66.76 (strongest levels since mid Nov’16).
 
What’s in store ahead?
The Dollar Index, after a brief decline towards 99.00-99.50, has started rising again and is touching the 101.50 mark. In this dollar rally, Rupee has either gained or remained stable. On the last occasion when dollar index was near the 101.40-50 mark (mid Jan’17), rupee was around 68 – this time rupee is comfortably below 67. There is certainly some disconnect. In usual circumstances, rupee cannot gain when dollar is rising against other currencies. Sudden rise in the Indian bond yields (obviously spooked by the RBI’s change in stance from accommodative to neutral) could decipher some amount of this puzzle.  
 
On the daily candlestick chart, rupee has partially filled the 66.65-95 price gap formed in mid Nov’16. New down gaps have been formed at 67.93-67.89 (30Jan-31Jan’17), 67.7875-67.6850 (31Jan-1Feb’17) and 67.18-67.07 (8Feb-9Feb’17) – notice the horizontal pink lines. The momentum indicators are comfortably in the oversold region. MACD and its Signal line is about to give a buy USDINR indication. After sharp gains in 7-8 trading days, rupee has stabilized around 6675-95 for 5 successive trading days – suggesting that this region is a crucial support.
My sense is (this is sounding too clichéd now) that the days of sharp rupee gains are over. 66.75-95 will act as a good support. We could see a rupee weakening move towards 67.15-25 (first target) and 67.75-95 (second target) to fill the price gaps.
 
Importers: please continue to hedge your near term liabilities. Do increase your hedge ratios for medium term payments as well. Forwards and options (volatility is low and hence this is cheap) should be considered.
Exporters: wait for dollar upticks. If one needs to hedge now, consider only options. For forward selling, use the targets suggested above.

Silver: $18.00 target met

Author:-Mr. Nitesh Sharma

Posted Date:-15-Feb-2017

My last outlook on Silver was shared on 30th November when silver was trading around 16.60 levels and I set a target of 18.00-18.50 levels. Silver made a high of 18.07 yesterday and immediately retraced back below 18.00 to trade currently at 17.86.The time for correction has come and likely the toppish should be around 18.10-18.20 ( Rs 42900) from where sharp reversal back to 17.00 ( Rs 40000) is expected which I expect to hold for sideways trading thereafter. Traders may start selling by 10-20% at current levels and remaining between 18.10-18.20 levels for a take profit at 17.00.


Mentha Oil-Upside open for 1070

Author:-Mr. Nitesh Sharma

Posted Date:-13-Feb-2017

Correction in menthe prices from 1070 got over at 985 and break of 1010 on the upside confirm the near term bottom is in place at 985.Both daily and weekly chart gives a bullish indication towards 1060-1070 mark and should find first resistance around 1071.5 high seen on 3rd Jan. On the downside good support is seen at 1010 and looks unlikely to trade below 1010 in the near term. Good to stay long around 1025-1030 for a target of 1060 before consolidation between 1010-1080.Good to stay long this week.


EURO Outlook- Consolidation ahead

Author:-Mr. Nitesh Sharma

Posted Date:-13-Feb-2017

The upside resistance in Euro/USD  was intact with the pair making a high of 1.0829 on 2nd Feb within my sell zone of 1.0790-1.0875 as shared in previous mail. U.S. President Donald Trump pledged on Friday to announce a "phenomenal" tax reform. Most of the dollar gains after the surprising election win came with the end of political uncertainty and promise of fiscal stimulus and infrastructure spending. The first three weeks of the Trump administration had not made much inroads on his pro-growth agenda, favoring instead an "America first" protectionism which have weakened the USD. His comments on Friday put the reflation trade back in focus. A faster pace of economic growth in the U.S. would be accompanied by higher interest rates as the Fed keeps the economy from overheating.
 
 The mixed U.S. non farm payrolls (NFP) report showed a strong number of jobs being added (227,000), but disappointed in the monthly wage growth of 0.1 percent  has put the march rate hike probability below 8%.I believe next FOMC meet may be a status quo with hawkish tone  which will be strong dollar irrespective of no hike in march.
 
Technically as can be seen on the chart good support is seen around 1.0585-1.0610 mark with RSI and Slow stoch giving positive divergence.14 days moving average converges at 1.0595.Immediate resisitance is seen at 1.0650.A bounce to 1.07 is expected in next couple of days from the current levels which means EURO/INR can push up closer to 72 again thereafter bring a broader weakness towards 70 mark in coming months. Overall trend is down and this can be construed as  correction in coming days. Euro can be bought with a stop loss of 1.0575 for target of 1.07.A break of 1.0575 will open door for deeper fall towards 1.0350-1.04 mark which looks unlikely in this rally.Buy with a stop loss here.

Article 50 and its impact on GBPUSD

Author:-Mr. Dilip Mathew

Posted Date:-10-Feb-2017

Article 50 and its importance?

Rarely has a single article of around 300 words signified such importance to a currency. The article 50 states that a member state can withdraw from the European Union in accordance with the member states constitutional requirement.  It goes on to state that the member state should notify the intention to leave and set out the arrangements for its withdrawal, taking into account the future relationship with the Union.  The article gives a time frame of 2 years for the negotiating parties to agree upon the new arrangements. The wordings of the article are rather vague, probably because the people who wrote it never really expected it to happen.

 

Source: European Union Lisbon Treaty

 

The invocation of Article 50 by the United Kingdom in March would be the first time it will ever be invoked. In the current scenario, any other country leaving the Union looks bleak. A country which could come closest to invoking Article 50 would be France. The French presidential elections are scheduled to take place on April 23, 2017 and Marine Le Pen, one of the presidential candidates has been extremely vocal on how the common currency is hurting them.

 

Pound has taken a pounding ever since the referendum

Ever since the historic UK referendum on June 23, which voted to exit the European Union, GBPUSD has been on a downward spiral. From the pre-BREXIT level of 1.46, GBPUSD collapsed to touch a multi-year low of 1.1450 before staging a slight recovery and is presently trading around the 1.25 levels. The collapse has primarily been due to political uncertainty than due to any marked downturn in UK’s economic health.

From the Indian perspective, GBPINR has fallen from pre referendum levels of above 100 to a bottom of 80-81. The pair is now trading around the 83-84 levels.

 

What to expect from the Pound after invocation of Article 50?

With close to 50 days left for the official invocation of article 50, there are some steps still left including the Brexit bill to be passed by the UK House of Lords which is scheduled to debate over the same on February 20. Judging by the near unanimous passing of the bill by the House of Commons, the same can be expected from the House of Lords.

 

We expect that these procedures which should eventually result in the invocation of the Article 50 before March 31 and could see further downsides in the Pound. Once the uncertainty is mostly alleviated post the article 50, the market should be in a position to bounce back and strong gains could be witnessed in the GBPUSD pair.  Among other reasons, Bank of England might also look towards raising the interest rates given that the UK economy has been performing relatively better, when compared to the rest of the developed world. The rate cut by the Bank of England after the referendum has also worked against its inflation targets of 2%.  If the Bank of England’s Kristin Forbes recent comments are anything to go by, we could see the Bank act towards the end of this year or the starting of the next.

USD/INR to bounce back to 67.75-67.80

Author:-Mr. Nitesh Sharma

Posted Date:-03-Feb-2017

As expected we saw sharp volatility in USD/INR and within this week as I mentioned earlier ( scroll down to read).While I was not sure which side the break could have been  but I had placed higher bets on the upside keeping the fundamentals in mind. Never mind what was important in this move to understand which instruments of hedging to be used when from risk management point of view and how one can neutralize from this move.
 
My suggestion to exports and importers was to buy plain vanilla put and call respectively for near term exposure. A vanilla call/put option is suggested when one knows that there can be huge volatility but which side we are not sure. A put option of 68 on 30th Jan was quoting at 20 paisa and today at 56 paisa , so an exporter is adequately hedged at 68 without any risk. A call option on 30th was quoting at 30  and today the premium is 7 paisa. So those corporate who bought a call may unwind the option at a loss of 23 paisa and switch to simple forward at current levels so save net of 45  paisa from this move ( Saving by not doing forward is  68.06-67.38=68 paisa )
 
Whats now?
 
I feel this may give good opportunity for RBI to intervene in the currency market as in  real effective terms, which adjust for inflation differences and measure the currency against trading partners’ counterparts, it climbed about 16 percent from the end of 2013 through 2016, according to the Bank for International Settlements. Along with prospects for U.S Federal Reserve interest-rate hikes that can boost the dollar, I anticipate that RBI will take opportunities to bolster its foreign-exchange reserves during the year -- selling rupees in the process. With global financial markets expected to be volatile in the period ahead, the RBI would need to buy dollars at every opportune moment to shore up more reserves. I hope RBI is hearing this!
As seen on the chart today closing around 67.38-67.42 levels will confirm a spinning top and mark the second sign of reversal from here. First sign being the RSI which is oversold and in 4 hourly it is showing a divergence. I expect rupee to have bottomed out around 67.25-67.35 levels and may spike to 67.75-67.80 in a week’s time. Importers are advised to stay hedge for Feb and march and exporters may wait for a recovery to 67.75-67.80 for hedging. The levels also coincides with my yearly range for Rupee Outlook as shared on 9th Jan.

USDINR Ideas - Nothing endures but change

Author:-Mr. Ritesh Victor

Posted Date:-03-Feb-2017

Just when everyone thought that INR 68 to a dollar is the new norm – boom, the market delivers a punch and says “I’m the boss, not you”. It took just 4 working days to change that norm and suddenly, we have levels around 67.30-40 (something, that was a bit difficult to imagine a few weeks back – specially after Trump came in with his strong dollar rhetoric). Let’s introspect and recognize what the market is trying to teach us:
First, there is nothing called a norm.  
Second, levels evolve (change) – “Nothing endures but change” - Heraclitus of Ephesus (a Greek philosopher).
 
A question naturally arises – what really happened to warrant such a rupee gain so quickly?
Trump’s jawboning was the primary factor – along with his administration officials, Trump has accused certain nations (China, Japan, Germany) of currency manipulation to gain trade advantages, and complaining that dollar is too strong. Quite a clear signal for the markets to sell dollars. Dollar index collapsed from 101 to 99.5 in 2 days – all currencies surged (along with the rupee).
 
What lies ahead?
There are two down-gaps in the daily chart (green horizontal lines), first at 67.93-67.89 (30-31Jan) and the next at 67.7875-67.6850 (31Jan-1Feb). Recognizing rupee’s gap filling ability, a move towards those ranges can be anticipated. An up-ward moving trendline (yellow line) connecting dollar lows of Feb’15 and Nov’16 comes near 67.05-67.20. The 144-day Simple Moving Average (a reliable support/resistance indicator) is at 67.33. Momentum indicators are nearing the oversold territory. There is an unfilled gap around 67.25-67.31 (pink horizontal line).
My sense is that dollar will find support around the 67.10-30 region for a move to 67.90-68.00 (at the least).
 
Importers: please hedge your near term liabilities. Can also increase hedge ratio for medium term payments. Do more of forwards and consider some options.
Exporters: am sure you would have hedged 30%-40% using forwards and would have done some seagulls too (following my mail dated 16 Jan’17).


GBP/INR : 85.50 target met

Author:-Mr. Nitesh Sharma

Posted Date:-25-Jan-2017


I almost met my first target in GBP of 1.2550 ( made a high of 1.2541) as shared in previous mail sent on 19th Jan. Move from 1.2274 was very sharp and prompt.  Sterling weakened on Monday  against Dollar after the UK Supreme Court ruled that Prime Minister Theresa May must get approval from Parliament before triggering Article 50 for Brexit negotiations but bounced back again. Nonetheless, a government spokesman noted that the ruling won't change the schedule and May would still trigger Article 50 by the end of March. Opposition Labour leader Jeremy Corbyn also said they wouldn't block the move. Instead, the Labour would seek to influence on the shape of the deal and seek "full, tariff-free access to the single 
 
As shared previously I expect 1.2550 mark to hold as of now and may see some correction in GBP from the current levels to my target of 1.2460 ,however note a break of 1.2415 on the downside will confirm a temporary top had been formed at 1.2441 and the look can be more bearish towards 1.2305.On the upside only a break of 1.2550 will open door for ultimately 1.2775 from where a bigger downfall will resume to my second target of 1.2305 which I would expect to hold and some sideways consolidation can be seen between 1.23-12550 levels  On the GBP/INR pair we achieved the upside range of 85.50 and downside support is seen now at 84.20.Any correction from 85.50 towards 84.20 will be construed as a correction move and fresh upside will start again .Exporters may look to sell 20% of the exposure here for the medium term and stay on the sidelines for the GBP/USD pair to make an attempt towards 1.2775 to hedge remaining 80% in case it breaks 1.2550.Momentum indicators indicates a overbought condition now and a correction may be on the cards. Traders may look to sell only with a stop loss at 1.2585.

EURO Outlook

Author:-Mr. Nitesh Sharma

Posted Date:-20-Jan-2017

The ECB kept all policy measures unchanged at yesterday's meeting, in line with expectations. The ECB still expects rates to remain at present or lower levels for an extended period of time and well past the horizon of their net asset purchases. Regarding QE purchases, it still intends to continue these until the end of December 2017, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim. Draghi made it clear that higher inflation will not automatically result in QE tapering. Instead, four elements need to be fulfilled before the ECB will conclude that inflation is on a sustained adjustment. These include that the higher inflation (1) is affecting the medium term, (2) is durable, (3) is self-sustained and (4) is region wide. In my view, core inflation will stay below 1.0% on average this year, as wage pressure will stay subdued particularly in the periphery countries. Hence, I expect the ECB to continue its QE purchases in 2018 too on account of five reasons .
1. ECB remains too optimistic on lower core inflation – the low core inflation reflects very low core inflation in periphery countries.
2. The ECB's wage forecast is still hopeful – German wage growth is stable and i expect labour market slack to keep periphery wages low.
3. According to Draghi ECB's inflation forecast is ‘not really' close to 2.0% - QE is likely to be extended if projection is lowered again
4. Tapering would damage the recovery in periphery countries – weaker GDP growth would delay further any increase in core inflation.
5. High political uncertainty should keep the ECB on the sideline – elections in 2017 could bring a very new situation to the euro area.
 
In my previous mail which was sent on 17th Nov, I expected a bounce in Euro from 1.05 levels  for my target of 1.0880-1.090( new readers may scroll down to read) to eventually come lower to 1.05 again .On 8th December Euro made a high of 1.0873 to retrace back towards 1.05 and below to 1.0340 before reversing the loss post Trump speech. While in medium term I continue to hold my view for  larger Euro depreciation possibly towards parity or below but in the very near term I will be biased towards neutral to upside. As seen on the chart now support base is seen around 1.0510 and major resistance and strong selling zone ( Highlighted in yellow) is around 1.0790-1.0875.Euro exporters and traders may sell between 1.0790-1.0875 levels for a larger depreciation in coming months. 1.0875 should mark a very strong resistance zone and only a break above that level can open door for new trajectory of 1.10-1.13 which looks unlikely. In Euro/INR pair the downside will be limited to 71.75 and upside open for 74.Trading range will be limited to 71.75-74.00 for coming weeks and extension beyond this unlikely to sustain. Markets may see some volatility on Trump’s inauguration speech and any forward guidance for financial markets.

GBP outlook and key points from Prime Minister Theresa May

Author:-Mr. Nitesh Sharma

Posted Date:-19-Jan-2017

All eyes were on Prime Minister Theresa May on Tuesday, as she delivered a landmark speech on Brexit. Pound had a historic day nonetheless, surging 2.9%, its largest 1-day gain since 2008.In my previous mail on Monday  I had warned for sitting in sell position and advised to book profit or stay aside from selling at those levels. In her remarks, May confirmed that Britain would no longer enjoy access to Europe's common market, but would assume full control over its borders and immigration policy. She said that Britain was not looking for a “half-in, half out” relationship with the EU, and Britain would seek free-trade deals with Europe and countries around the world. Theresa May intends to begin Brexit negotiations with Europe in March and has set a two-year time frame for an agreement to be reached.
 
British Prime Minister Theresa May on Tuesday confirmed that the United Kingdom is going to trigger Article 50 of the Lisbon treaty and move out of the European Union. She said that her government would work to seek a bold and ambitious deal for the British people. However, she seems to be in favor keeping close and friendly relations with rest of the countries in the EU. She said, “We are leaving the EU, but we are not leaving Europe”. Below are the key points from that speech that my readers should ponder upon,

- Britain will not seek continued single market membership with the EU.
- On the customs union, the UK wants to leave the common external tariff but reach a new, unspecific customs agreement.
- UK will make contributions to the EU budget but that won’t be a vast one.
- UK parliament will vote on the final deal with EU before it comes into force. Both the house will be allowed to vote.
- UK government wants a phased process of implementation of the deal.
- UK will leave the EU without an exit deal if a good one can’t be reached.
- The country won’t provide a unilateral guarantee to residing EU nationals.
- The UK will control the numbers of immigrants arriving from the single market union.
- The common travel area between the UK and Ireland will remain as it is.
- The country would continue its security co-operations with the EU.
- The outlines given out by the Prime Minister attracted praises both in the country and in EU. However, as the PM rejected special arrangements for Scotland, Scotland National Party -    leader Nicola Sturgeon might ask for another independence referendum.
 
 
Technical Perpective
 
Pound has somewhat formed a near term bottom at 1.1940-1.1980 levels and ahead of the FOMC meet it is expected to scale upto 1.2550 , my first target. Pull back from 1.2420 to 1.2275 yesterday is corrective and sooner than later the upward move can target to my first target of 1.2550-1.2575 and break there would take it to 1.2775 , which should be a very good level to sell and exporters should take near to medium term hedge around those levels for eventual medium term target of 1.15.Quite similarly in GBP/INR pair the trading range has shifted from 81.20-83.75 to 82.50-85.50 and traders may initiate a trading position around 85.50 for a target of 82.50 levels. All eyes will be on the ECB meet today and Trump speech tomorrow!

Using Seagulls to hedge forex risk

Posted Date:-16-Jan-2017

The new year has dawned and the central theme for financial markets has been US dollar’s strength (this has continued since Trump’s victory on 8Nov16). The US President-elect has been promising to bring about substantial changes to “make America great again”. Lot of promises (his press conference a few days back was combative and he was in full control). Well, election promises and actual deliverance are two completely different things (our honourable Prime Minister will certainly vouch for this).
 
In this widespread circumstance of dollar strength, rupee has been stable around the 68 mark (high-low range of 67.70 – 68.35) since 15-Dec-2016. Rupee holding above the 68 mark puts some kind of a psychological pressure on exporters (and importers alike), with a feeling that rupee is weak. Levels around 67 are fine, but 68+ levels are a sign of rupee weakness. Is this really true?
Analyze this – rupee spot was around 67.50 as on 15-Jan-2016 – indicating that since then it has weakened only about 1% (or 60-70 paise per USD) - while forward premiums at that time was in excess of 6% (or 400 paise per USD). Effectively meaning that despite levels above 68, rupee is not really weak.
 
Mr. Victor – enough of history. Tell me, how do we hedge?
 
For exporters: do some forwards (about 30-40% of total exposures). 4.5% annualized premiums fetches a forward rate in excess of 71.10 for Jan-2018 (not bad, isn’t it?). One should certainly use options as well.
A Seagull option looks good now (for 1-year maturity):
Buy USD Put at 70.75 (near the current forward rate)
Sell USD Call at 73
Sell USD Put at 67.50
In the above option structure, our risk arises if rupee weakens above 73 (7% rupee weakening in a year’s time – an unlikely scenario) or if rupee gains below 67.50 (1% rupee appreciation after 1 year – this looks unlikely too). In the rare case that rupee does gain beyond 67.50 after one year, you are still protected and will gain Rs. 3.25 per dollar (70.75 – 67.50) from the market rate.  
 

Spot at Maturity

Sell USD Put 67.50

Buy USD Put 70.75

Sell USD Call 73.00

Net Effective Rate

65.00

67.50

70.75

Not exercised

68.25

66.00

67.50

70.75

Not exercised

69.25

67.00

67.50

70.75

Not exercised

70.25

68.00

Not exercised

70.75

Not exercised

70.75

69.00

Not exercised

70.75

Not exercised

70.75

70.00

Not exercised

70.75

Not exercised

70.75

71.00

Not exercised

Not exercised

Not exercised

71.00

72.00

Not exercised

Not exercised

Not exercised

72.00

73.00

Not exercised

Not exercised

Not exercised

73.00

74.00

Not exercised

Not exercised

73.00

73.00

75.00

Not exercised

Not exercised

73.00

73.00

76.00

Not exercised

Not exercised

73.00

73.00

 
For importers: if rupee recovers towards 67.50-80, start hedging for 1-2 months. Consider using options too.

USD/INR- Outlook

Author:-Mr. Nitesh Sharma

Posted Date:-28-Sep-2016

In my last two mails ( previous one was a monthly bulletin ) my advice  for exporters was to stay hedged and keep selling on upticks  while for the importers the advice was to postpone their hedge and take advantage of the time decay and falling forward premiums . Quite precisely initially USD/INR weakness halted at 67.25-67.30 mark where we saw good exporter interest , followed by 67.07-67.15 mark recently and from there on its been a one side move for the pair which is trading at 66.48 as I write. The continued appreciation in rupee was on account of FPI flows in the market ( Vodafone inflow of $ 7.2 bn) and FED’s decision to  stay put on interest rate hike in the September FOMC meet while the forward premium corrected with the fall in Indian  yields and stabilized US yields .Exporter who sold at 67 in August  for August 2017 ( 1 year) would have got a forward rate of 71 against 69.80 levels today. The drop has been on account of both from the forward premium and rupee appreciation while importers who hedged at 66.85 for 3 months would have hedged around 67.90 against 67.20 today  , so a mark to mark loss of 70 paisa.

 

What’s next?

 

Lot of uncertainty is looming ahead with US elections , RBI rate cut hope, FED’s December rate hike uncertainty and crude output oil freeze in the near term and fresh direction is still not clear. Market will tend to swing between risk on and risk off in coming days. It’s expected that USD/INR will consolidate between 66.35-66.75 with extension limited to 66.25/66.10 on the downside and 67.05 on the upside. From the technical perspective, exporter selling interest will revive now at 66.75 followed by 67.05.Till the time we do not see rupee depreciation above 67.05 now , the pressure  will be on the downside and importers can be cautious in taking forward cover beyond 2-3 months.

Corporate dilemma over rising LIBOR

Author:-Mr Nitesh Sharma

Posted Date:-27-Sep-2016

Quite recently as last week an interesting article of the rising labor was published by Ritesh from Myforexeye. To understand it better its important if we understand what is money market fund  and the reasons behind this regulation and the impact at the corporate level. With the rising libor rates , most of the CFO’s have started contemplating how far the libor could  go and if they should hedge their floating rate libor into Fix Rate  on their $ ECB liability maturating anywhere between 4-7 years{ basically we are talking of USD Interest Rate Swap(IRS)}.In last 5 days I have spoken to  at least 7 CFO’s who have started exploring it internally and even started talking to their bankers. A 4 year USD swap rate is quoting at 1.15 against a 6 months libor of 1.24.

But before that let us understand why labor is rising. The London Interbank Offered Rate (LIBOR) has been on the rise since last few months, but not for the usual reasons as we shared earlier. Normally, increases in LIBOR is associated with Federal Reserve (Fed) policy rates and expectations. Here derives from another source which is impending regulatory changes to U.S. money market funds (MMFs). The reforms, adopted by the Securities and Exchange Commission in 2014, go into effect Oct. 14 of this year. The new rules will change the structure of money market funds by moving from a fixed $1 net asset value (NAV) to a floating NAV for institutional “prime” money funds, and imposing potential redemption fees and suspensions in the case of some other MMFs .The changes will be nominal for most individual or retail investors, but for institutional investors and the fund providers, the changes will require significant rethinking on the value of money market funds.

What is a 'Money Market Fund'

A money market fund is an investment whose objective is to earn interest for shareholders while maintaining a  net asset value (NAV) of $1 per share. A  money market  fund’s portfolio is comprised of short-term, or less than one year, securities representing high-quality, liquid debt and monetary instruments. Investors can purchase shares of money market funds through mutual fund, brokerage firms and banks. A money market fund's purpose is to provide investors with a safe place to invest easily accessible, cash-equivalent assets. It is a type of mutual fund characterized as a low-risk, low-return investment.

The Reason Behind Money Market Fund Reform

At the peak of the 2008 financial crisis, the Reserve primary Fund large New York-based fund manager, was forced to reduce the  net asset value (NAV) of its money market fund below $1 due to massive losses generated by failed short-term loans issued by Lehman Brothers. It was the first time a major money market fund had to break the $1 NAV, which caused a panic among institutional investors, who began mass redemptions. The fund lost two-thirds of its assets in 24 hours, and eventually had to suspend operations and commence liquidation.

Six years later in 2014, the Securities and Exchange Commission (SEC) issued new rules for the management of money market funds to enhance the stability and resilience of all money market funds. Generally, the new rules place tighter restrictions on portfolio holdings while enhancing liquidity and quality requirements. The most fundamental change is the requirement for money market funds to move from a fixed $1 share price to a floating NAV, which introduces the risk of principal where it had never existed.

Until 2014, money market funds were allowed to fix their net asset value (NAV) so it would always trade at $1 per share. In their history, only three money market funds have been forced to break the $1 NAV. As of 2016, the most recent occurrence was during the financial crisis of 2008, which caused a run on money market fund assets. To avoid a future occurrence, the U.S. Securities and Exchange Commission (SEC), issued new rules for the management of money market funds for the purpose of providing them with more stability and resilience. The new rules place tighter restrictions on portfolio holdings and introduce triggers for imposing liquidity fees and suspending redemptions.

How does it affect a corporate and what should they do?

The outlook for LIBOR post-reform depends on the level at which assets stabilizes in prime funds. In the near term, assets in prime funds are likely to continue their decline  till 14th October. This is both a function of the regulatory changes and economics. The drop in prime fund yields relative to government fund yields encourages investors to shift into government funds which is happening as of now and shown below in the chart. Post-reform, however, prime funds will be able to reestablish a yield advantage vs. government funds by extending maturities in corporate debt. That yield advantage could potentially attract flows back into this asset class and bring down the libor rates. Hence I believe the libor rate will cool off a bit ( not necessary to the same pre-reform levels) post reform after October , the extent of cool off and level will depend on the asset stabilization in prime fund and if FED chooses to hike rates by Year end then the cool off will not be much. As of now market is pricing in  a 25% chances that FED may hike rates in December.

For a Corporate the larger risk is on the unhedged libor risk on  ECB.The risk of libor going up consistently as seen in 2016 so far, what if it continues ?

Let’s review a live example of a corporate loan.If I consider a actual portfolio of a corporate having an ECB of $42 million with maturity at Sep 2023 and quarterly repayment of $ 1.05 mio uptil Sep 2023 with 6 month libor reset. On this 7 year loan the average maturity comes to 3.95 years .The 4 years USD IRS is quoting at 1.15 against 3 month libor reset. So if this particular corporate wishes to hedge it’s ECB then the cost will work out to approx 1.40 with a basis swap of 25 bps( 3 month libor over 6 month libor).It is to be noted that over the years the basis swap has been averaged at 12 bps unlike now which is quoting at 25-30 bps which is quite high and may not sustain in future as libor rate cools off after post reform. So what should a corporate do?

First it is not advised for a corporate to go for IRS with a 6 month libor fixing. No point paying higher 15 bps as basis at this point of time extra over  average 12 bps.Secondly we have to understand how many rate hikes are we seeing from the FED. Interest rate  predication  from latest June FOMC meet shows median Fed fund rates at .625 ,1.625,2.40,2.75 for  2016,2017,2018 and  long term respectively. Basis this it is good if a corporate can risk off the libor from their balance sheet by hedging their ECB’s  and shift from floating libor to fixed in 2 tranches .Though the timing could have been better by hedging earlier when 4 year IRS were trading below 1  however till still not a bad deal to hedge a 7 year liability at 1.4% when 6 month libor is already trading at 1.24 even if we know that libor may cool off after October but by how much when FED hike expected in December. It’s a real catch-22 for the CFO’s.

 

 

Whats with the rising LIBOR?

Author:-Mr. Ritesh Victor

Posted Date:-16-Sep-2016

A rising LIBOR is usually seen as an early signal to financial distress. The recent rise in LIBOR rekindles the gloomy days of the global financial crisis (when LIBOR spiked as bankers grew worried about the financial health of other banks). Is a financial crisis brewing now? No, extremely unlikely.

 

LIBOR is rising due to the uncertainty regarding the impending regulatory changes to U.S. money market funds (MMFs). These reforms, adopted by the Securities and Exchange Commission in 2014, will go into effect on 14 Oct. The new rules will change the structure of money market funds by moving from a fixed $1 net asset value (NAV) to a floating NAV for institutional “prime” money funds, and imposing potential redemption fees and suspensions in the case of some other MMFs.

 

Usually, increases in LIBOR are linked to Federal Reserve (Fed) policy rates and the expectations of future course of policy rates. Check the chart below – notice how LIBOR increased in Nov/Dec last year in anticipation of Fed rate hikes. The Fed did ultimately raise interest rates in Dec’15. The recent LIBOR increases in July and August, however, occurred without much change in expectations for Fed policy (no change expected on 21 Sept Fed’s meeting).

 

The recent rise in LIBOR might be interpreted to reflect concerns over bank credit quality. Nonetheless, other measures of financial sector credit risk declined in July/August. As such, the recent hardening in LIBOR has to do more with anticipation of MMF reforms rather than expectations of future Fed rate policy.

Rupee loosing correlation with Yuan? - PART 2

Author:-Mr. Ritesh Victor

Posted Date:-05-Sep-2016

In early July 2016, had indicated about rupee losing its correlation with Chinese Yuan – (typical emerging market currencies which have shown strong correlation in the past). Have expanded the analysis to include other comparable emerging market currencies, namely, KRW (South Korean Won), IDR (Indonesian Rupiah) and MYR (Malaysian Ringgitt). The results are interesting.

 

KRW (orange dotted line) has been a clear outlier, gaining against the dollar (since last week of July) – notice that it has weakened substantially in May. MYR (grey dotted line) has weakened the most – it has remained weak throughout our analysis period since 2 May 2016. IDR (purple dotted line) has been stable and range-bound since early July (after weakening significantly in May).  

 

Even though Rupee and Yuan are not moving in tandem, they are not diverging either (notice the gap between the red solid line {Yuan} and green solid line {Rupee} remaining more or less constant). With PBoC (People’s Bank of China – its Central Bank) keen to let Yuan devalue towards 6.80 (from the current levels around 6.67-6.68), other Asian currencies (including rupee) will probably devalue too.

 

What lies ahead for Rupee?

Despite volatility in global currencies, rupee has surprisingly been quite stable between 66.80-67.20. With Friday’s US Non-farm payrolls printing a disappointing 1.5 lacs new job additions vis-a-vis consensus estimate of 1.8 lacs new additions, rupee might open strong tomorrow (anything between 66.60-70). Strong dollar support at 66.50-60 range.

Exporters and Importers: Buy at-the-money vanilla options (strike price = forward rate). Short term USDINR volatility is quite low now and option premiums will come relatively cheap.

US NFP Preview: An action oriented day for currencies

Author:-Mr. Nitesh Sharma

Posted Date:-02-Sep-2016

The Non-Farm Payrolls (NFP) employment report coming up today will be an exceptionally critical one in relation to the Federal Reserve's monetary policy course in late September and beyond. Fed members, most notably Fed Chair Janet Yellen, have repeatedly stressed that economic data takes center stage in the central bank's policy decisions, and the labor market is one of the most important components of that decision-making.

Yellen remarked in last week's Jackson Hole  that the case for a rate hike 'has strengthened in recent months,' and that this was largely due to 'solid performance of the labor market and our outlook for economic activity and inflation.' These remarks were followed shortly after by a televised appearance featuring Fed Vice Chair Stanley Fischer, in which he stated that Yellen's speech was consistent with the possibility of a rate hike in September and potentially more than one rate hike by the end of 2016. As a result of these relatively hawkish pronouncements, the market's expectations of a Fed rate hike increased markedly and the dollar sharply extended its recent surge. For the most part, this surge has continued this week in the run-up to today’s  critical jobs report.

The NFP reports for the past two months have painted a rosy picture of the US employment situation. June's data, released in early July, revealed an exceptionally positive 287,000 additional jobs versus prior expectations of 175,000. The actual number was subsequently revised even higher to 292,000. July's numbers, released early last month, similarly showed a much better-than-expected reading at 255,000 non-farm jobs added against forecasts of 180,000. Today’s  jobs data will be the last major employment release before the next FOMC policy meeting and statement on September 21st.The Fed Fund futures market is showing a 24% implied probability of a rate hike at the September meeting. This number could change immediately and drastically, however, depending on the outcome of today’s  release. Consensus expectations for today’s  NFP is  around 180,000 jobs added for the month of August. The August unemployment rate is expected to come in at 4.8%, while average hourly earnings are expected to have increased by 0.2%.

Wednesday's ADP employment report, which sometimes serves as a limited leading indicator for NFP Fridays, came in slightly better than expected at 177,000 jobs added in August against prior forecasts of 174,000. Additionally, July's ADP reading was revised substantially higher from the originally-reported 179,000 up to 194,000.

Despite the discouraging ISM Manufacturing data, other leading employment data points are pointing to an actual NFP reading on Friday that could likely be somewhat better than the expected  which is 180,000 jobs added for August, with a target range around 185,000-200,000. However, one caveat should be stressed: for the past five years, August jobs data has disappointed expectations each and every year. Caution, therefore, should be exercised when trading potentially affected markets, as always. Any substantial deviation from consensus could make a significant market impact, primarily on the US dollar and commodities like gold. In particular, both EUR/USD and USD/JPY could make some substantial moves, as is often the case, depending on Friday's actual reading and its potential monetary policy implications.

NFP Jobs Created and Potential USD Reaction in my sense.

NFP Jobs created

Reaction

USD/INR

EUR/USD

GBP/USD

USD/JPY

> 200,000

Strongly Bullish

67.1

1.105

1.3075

105

180,000-200,000

Moderately bullish

67

1.11

1.3175

104.2

160,000-179,000

Moderately Bearish

66.85

1.125

1.335

102.5

< 160,000

Strongly Bearish

66.7

1.13

1.345

101.5

 

Tonight's release is going to have major implications to both the long and short side of the trade. Either you will gain big or lose big if the data is strongly bullish or strongly bearish. This isn't the type of release that has a clearly overstated bias that is set up for disappointment in one direction. For me here, trying to pick a direction with the risks on both sides of the market as they are, just isn't worth it and the advice to traders are to go light today in position.

Janet Yellen's Jackson hole speech review

Author:-Mr. Nitesh Sharma

Posted Date:-29-Aug-2016

Federal Reserve Chair Janet Yellen said the case to raise interest rates is getting stronger as the U.S. economy approaches the central bank’s goals.In light of the continued solid performance of the labor market and her  outlook for economic activity and inflation, they believe the case for an increase in the federal funds rate has strengthened in recent months, she said in the text of a speech Friday to central bankers and economists in Jackson Hole.She also said the economy is nearing the Fed’s goals of full employment and stable prices. The Fed chair didn’t discuss the specific timing of a rate move in her first public comments since June. Despite their repeated intentions to raise the rate again, officials have skipped a hike at all five meetings this year, and futures markets have now priced in about a 30 percent chance of another hike at the Sept, 20-21 policy meeting, the second-to-last gathering before presidential elections in November.As per them while economic growth has not been rapid, it has been sufficient to generate further improvement in the labor market, Yellen said . Friday’s US Non-Farm payroll figures are going to be closely monitored by the market as participants look for any hint of what’s to come. Therefore, given the difficulty in forecasting the NFP, a volatile surprise is highly likely.

 

Impact on currencies and what lies ahead…

 

Given the long list of FOMC members due to speak over the next 72 hours, it seems a relatively sure bet that they will be pushing the statement of rate hikes which will only seek to further depreciate the currencies against Dollar. Post Yellen speech all the major currencies like EUR,GBP and Yen came crashing down again the USD.Euro was down from 1.134 levels to 1.1205 and GBP from 1.327 to 1.3125 and yen from early 100 to 102.20 levels at the time of writing. From a technical perspective, the EUR/USD pair’s retreat from the 1.1365 high is continuing and suggests that a corrective move back towards the 1.1042 mark is now underway. Pound can move back to early 1.30 levels and USD/INR opened slightly weaker today at 67.14 levels and continue to be under pressure at the time of Asian market.

 

The near term forecast for the different currencies will be as below:

 

USD/INR- The pair may test 67.70 mark by September end or early October once 67.25-67.30 levels is taken away. The major drivers will be the global USD strength and $ liquidity shortage in the Indian market owing to FCNR repayment. Downside will be capped at 67 now with upside risk of 67.70 levels open. Even Yuan likely weakness towards 6.7 may put pressure on the rupee in September and October supported by correction in equity towards 8330 mart as we move towards FOMC meet in third week and noise of rate hike becomes more louder.

EUR/USD- As said earlier euro may slip towards 1.1040 mark and selling pressure will intensify. Upside move will be checked at 1.1250.In EUR/INR pair the near term range has shifted to 74.25-75.80 and above 75.50 will be difficult to hold.

GBP/USD- Pound has been confined between 1.30-1.33 mark and may continue to do so in the near term. Pound will be relatively better  placed in comparison to Euro.GBP/INR may slip to 87.50 in coming days.

 

What’s on DXY Chart?

 

 

As shared in previous mail , DXY bounced back from major support zone of 94-94.20 as expected. The hammer formation worked well and break of 95 on the upside has confirmed the downfall in the index from 97.57 has ended at 94.09 levels and now support lies at 95 and 94.65 levels with upside open for my first target of 96.50 in coming few days. A correction to 95 is possible before my said  target of 96.50 levels.As shared on the chart below the index continues to move within the set upwards sloping channel and looks quite bullish in the coming months and  potentially may target 99 mark by December. Momentum indicators has turned bullish on a weekly chart. So the mantra is  keep buys $ on dips .

Nifty outlook: Correction to 8330 possible

Author:-Mr. Nitesh Sharma

Posted Date:-26-Aug-2016

 

It’s been long time since I have shared any update on the NIFTY outlook inspite of the fact we have been mostly bang on our target. As I have been repeatedly saying we are in the long run bull market in the equity and we should be able to break past 9100 peak by the  year end if not earlier  hence any correction in this asset class is an opportunity to buy and stay invested for long term(3-5 years). On my long term outlook sent on 24th August I had share likely bottoming out in the index around 7200 mark before scaling back 8200/8500 levels and above  which was the trend line support(new readers may scroll down to read it) and it bounced from 6800 level in Feb 2016 to now trading around 8600 mark. The rally has been mostly driven by global liquidity , GST optimism , reforms and stability in the Indian market.

 

What’s ahead?

 

At present the long term momentum indicators are overbought and with market consolidating between 8550-8750 , the risk is more on the downside from the current levels  .A break of 8550 on the downside will confirm temporary short term top was formed at 8734 and on the downside I will target 8335 market before bouncing again. Overall any deeper correction will not be below 8000 levels and buyers should look to enter at 8335 /8200 and if that breaks the worst case 8000.Overall I continue to stay bullish on the equity market and  should target 9120 mark and break past of it will take it to 9700-10000 mark( another 10-12% rise from all time high) by next year end but before that some correction on cards in coming days. The important event today is Yellen speech which may pull the trigger if she sounds hawkish. If Yellen sounds dovish and market continues to hold  8550 for next few days than it can be possible that it bounces back to 8740 and break will make it to test the all time high of 9119 mark in coming months. For trade strategy one can buy a 8300 put at 35 for September expiry with stop if nifty fails to move down below 8550 and instead break 8650. 

USD/INR- Outlook

Author:-Mr. Nitesh Sharma

Posted Date:-24-Aug-2016

Quite  precise on the USD/INR  movement what I shared previously, rupee bounced back to break resistance of 67 handle to meet  my immediate  target of   67.25-67.30 level ( made a high of 67.24 on 22nd August) which was expected to hold at the moment and now continues to trade in the range of 66.85-67.30 for the remaining part of the month. I hope importers have bought around 66.80 and exports cashed n around 67.25 levels as advised earlier.

 

Ahead of the jakson hole event on friday rupee is expected to trade between the said range with downside biased to major support level at 66.88-66.92 levels while upside will be capped at 67.35 levels.In the near term 67.30-67.35 mark has to breach for opening the doors towards 67.75 mark else it will continue to consolidate between 66.85-67.30 levels in the near term.All eyes on Yellen speech on Friday.


Dollar Index (DXY)- Jackson Hole waiting game

Author:-Mr. Nitesh Sharma

Posted Date:-24-Aug-2016

All asset prices stays range bound , as investors and traders are reluctant to place large directional bets ahead of the Jackson Hole address by Fed chair Yellen this Friday. Fed's Vice-Chairman Stanley Fisher grabbed the headlines on friday after providing an optimistic outlook on the U.S. economy saying that the economy is close to meeting the central bank's targets and that GDP growth is expected to pick up in coming quarters as investments recover from a surprisingly weak patch. His comments provided the dollar a boost on Monday to recover further from a 2-month low, however, markets seem not yet convinced on the path of normalizing monetary policy and need confirmation from Chair Janet Yellen who is due to speak  on Friday.

 

What’s on DXY chart?

 

With the lack of investor conviction on the timing of the Fed's next rate hike, has the DXY failing to break back into a positive trend channel formed in June. Currently, the index languishes atop of key support levels (94.00) and is looking to add to last week’s -1.3% loss. DXY is well supported at 94.10-94.30 trend line support as seen on the chart and with yesterday “ Hammer Formation”  it might be possible that  we may see some more upside in DXY towards 94.80 ahead of Friday however a decisive break of 95 on the upside will confirm the downward trend ii Dollar is over and focus will shift to meet 97 mark in future. On the down side a break of 94 can set very bearish tone for DXY for eventually moving back to 91.50-92 levels seen in April .With 57% weightage of Euro in DXY it may be a key event for Euro exposure  clients who are looking for  direction from the current levels. The other likely effect will be seen on USD/INR and GBP as well.

Are Options the appropriate hedging instrument now?

Author:-Mr. Ritesh Victor

Posted Date:-20-Aug-2016

Had indicated that rupee could make an attempt towards 68 levels (please refer to my research dated 4 July 2016). My argument was that, with weakening Yuan, Rupee cannot remain strong (and had to weaken). Since early July 2016, Yuan did continue to weaken a tad more towards 6.70, but rupee didn’t go anywhere – in fact, it remained in a tight range between 66.70 to 67.20 (with a minor extension towards 67.50). Subsequently, Yuan recovered too (towards 6.62 – 6.65). The argument for rupee weakness was lost.

 

Rupee’s recent stability has substantially lowered USDINR options volatility – as such option premiums (price to purchase an option) have reduced significantly. Analyse this:

A 1-month At-the-money option (strike price = forward rate) now comes at a price of 43-44 paise per dollar. A similar At-the-money option would have cost 49-50 paise a month back and 54-55 paise 2 months back.

Similarly, a 3-month At-the-money option now comes at a price of 86-87 paise per dollar. A similar At-the-money option would have cost 94-95 paise a month back and 99-100 paise 2 months back.

 

With such uncertainty regarding the direction of rupee, using options to hedge risk makes sense. Let rupee go anywhere, as long as options are bought, my downside will be protected and upside remains completely open (best of both the worlds) – this will obviously come at a cost (option premium) – that cost is low now.  

Crude Outlook: $44 target met

Author:-Mr. Nitesh Sharma

Posted Date:-12-Aug-2016

We met our target of $44  in crude  as shared in trail mail and booked our profit today. US crude prices continue to show volatility this week. Crude has jumped 4.2% on Thursday, after  IEA stated that oil supplies will decrease in the third quarter, despite record pumping levels from OPEC in July. The IEA added that although oil prices have dropped recently, its balances do not show an oversupply in the second of 2016, and that it expects demand to increase in the third quarter. If anything, prices 'should' actually rise in the event of undersupply. What's more, the surging US equity prices to record high levels point to improving economic conditions (the markets tend to lead the economy), which in turn implies even stronger demand for oil next year.

 

What’s on the chart?

 

Indeed, as WTI oil remains well above its monthly reversal candle, the long-term outlook remains bullish in my view. As seen on the  weekly chart below, WTI oil formed a hammer candlestick formation which when found at the lower end of a price swing, usually, precedes a reversal in the trend. From here until the level of 44.40 is breached I expect a small correction could be possible towards back to 42-42.50 mark again before a rally taking out first 44.40 mark to target 46.Consolidation now can been seen between 40-46 in coming weeks with break out difficult to sustain .

EUR/USD: Running in a downward sloping channel

Author:-Mr. Nitesh Sharma

Posted Date:-11-Aug-2016

This is one currency pair which has been off guarded from the interest of the traders due to range bound trading since a couple of months. It has been the 7th week where Euro has been on a range trading between 1.09-1.1236 levels and don’t have much reasons to believe  the range breaking in the near term probably till the time one has a clarity if US Fed will hike interest this year or not .Latest data showed U.S productivity has fallen for the third consecutive quarter which may simply heighten fears of a deceleration in Q3 GDP consequently obstructing efforts taken by the Fed to break the trend of central bank caution. Although July’s blockbuster NFP of 255k initially bolstered expectations of a probable rate hike as close as September, investors have returned to normality with FedWatch tool displaying a 40% probability of a December hike. Overall despite Tuesday’s soft productivity data, sentiment still remains somewhat bullish towards the Dollar and the encouraging outlook towards the US economy could provide a foundation for bulls to send the Dollar Index higher.

 

What’s on the chart?

 

As seen on the chart EUR/USD continues to move within the set channel since May and I expect selling pressure to resume between 1.1185-1.1230 levels with immediate target of 1.11 support levels.So breaking this levels on the upside might be difficult without any catalyst and Euro exporters should not chase for gains beyond this levels .Only on the upside on a closing above 1.12 on a daily basis may change my view in the near term with door open for 1.1350-1.14 mark before a reversal.Overall in the medium to long term I still hold a view of the pair testing 1.0460 levels on a break of first major support at 1.10 and 1.0820 levels.In the EUR/INR pair the upward correction from 73.50 will be over between 74.75-75.20 levels and will expect a correction from there and euro exporters may look to hedge at the said levels.While on the downside the break of 73.80-74.20 is needed to test 73 handle in the near term.So a major support hurdle lies at 73.80-74.20 levels which needed to be cleared to bring a bigger downside in the EUR/INR.

JPY medium term reversal

Author:-Mr. Nitesh Sharma

Posted Date:-11-Aug-2016

The USD/JPY outlook shared on previous two occasion was quite precise. We were sitting on USD/JPY sell position from 110-112 levels as shared previously in trail mail and exited all short to switch now on the Buy side .It has been a good return for our investors as post Brexit Yen fell to 98.85 levels as a safe haven currency and due to strong BOJ intervention the pair continued to consolidate between 100-103.50 levels with a spike seen to 107.47 levels last month on hope of larger stimulus package coming but disappointment from BOJ let the pair fall down and it is now consolidating  between 100.50-102.50 levels and looking for direction. The Bank of Japan (BOJ) disappointed markets with a very timid monetary policy response by expanding its purchases of exchange traded funds by 2.7 trillion yen a year from 3.3 trillion yen a year for a total of 6 trillion yen. However, the bank indicated it will be conducting a comprehensive policy revision on the effectiveness of monetary policy during its September 20-21 policy meeting

 

 

Whats on the chart?

 

Pasted below is 3 time frames on the chart: Weekly line chart, Daily chart and Monthly chart. On the weekly line chart the first sign of divergence can be seen on RSI.I can sense a double bottom formation on a weekly chart which is still under formation, hence any bounce from here and closure above 106 handle will confirm the double bottom formation and bring larger medium term reversal in the yen towards back to 110-112 levels first in coming months reinstating our view of reversal of yen for the fall which started at 126 and ended at 98.80 levels. On the downside 100.60 should hold to validate our stance for a medium term reversal which is supported by daily and monthly chart as seen on the chart below. If on the downside 100.60 is broken then we may see yen moving further south towards low of 98.80 and if that breaks then 95 before a reversal. At this juncture it is hard to believe yen moving below 100 on 4 front, firstly  BOJ may not want yen to appreciate further inorder to move out of deflation, secondly Nikkei must have bottomed out and may look to break the crucial resistance of 17000  to show a direction towards 20000 in coming months driven by global liquidity and the USD strength may continue in coming quarters  and fourthly the yen appreciation was driven by safe haven status in the past and with risk appetitive improving from here yen may depreciate  in coming months fundamentally which will be in the interest of Japan. Strict stop loss should be placed  below 100.

Pound slides on BOE cuts and stimulas expansion

Author:-Mr. Nitesh Sharma

Posted Date:-05-Aug-2016

In line with the expectation as I shared yesterday pound has posted sharp losses , following the historic decision by Bank of England to lower interest rates. GBP/USD has lost 200 points and is currently trading at 1.3130. The pound is under strong pressure so the downward trend will continue to 1.3050 mark  before a mild correction from here to 1.3220-1.3250 levels. The BoE has also expanded its asset-purchase program for the first time since July 2012, from GBP 375 billion to GBP 435 billion pounds. A rate cut had been widely expected, especially after the BoE surprised the markets in July when it did not make a move. Had the bank again remained on the sidelines, it risked losing credibility at a time of economic and political instability in the UK.

 

What’s now on the chart?

 

Post BOE meeting , the pair broke through the rising trend line on a 4 hourly chart confirming the top has been formed around 1.3350 levels in the very short term and it now looks difficult for it to move above 1.3250 levels now. The rising trend line as seen on the chart will act as a resistance. Post correction to 1.3220-1.3250 mark I expect pound to resume the downward trend to 1.3060 levels first. Only on the break of 1.3060 levels the market will look towards 1.2850 (post brexit low) else consolidation will be expected in the near term.On the GBP/INR pair has shifted the trading range to 86.50-88.50 for next few weeks .Exporters are advised to stay hedged above 88.30 levels for a target of 86 in coming weeks.

USD/INR- long term trendline holds

Author:-Mr. Nitesh Sharma

Posted Date:-04-Aug-2016

It was precise what i expected as shared in previous mail on 3 counts , firstly the USD/INR failed to break the trend line support marked at 66.60-66.85 region as I had shared in my previous mail and yesterday’s bounce confirms that the fall from 67.43 is over at 66.69 .Secondly i met my target of Nifty  at 8600 ( sent on a level of 8150 on  15th June ) and thirdly market traded end to end within my set range of 66.85-67.50 in the month of July  with extension limited to 66.60-67.75.I had shared that rupee breakout will likely happen only after July end or probably in august which hold true so far!

 

Whats now on charts?

 

With GST euphoria over and USD shortage in coming months it’s expected that rupee will continue the weakening trend in coming months. From here the immediate target will be 67.25-67.30 levels on a break of 67.00 handle which is the immediate resistance   and trading range till middle of august will be 66.80-67.35 levels with overshoot difficult to sustain. On  the downside importers can look to buy USD between 66.80-66.85 levels now while exporters may wait for 67.25-67.30 levels to sell which can probably be seen in next few trading days or by early next week. Breaking of 67.00 and 67.40 level will be crucial on a breakout higher side.

Oil correction over

Author:-Mr. Nitesh Sharma

Posted Date:-04-Aug-2016

WTI extended this downtrend as persistent concerns over the crude oil oversupply situation were compounded by a survey reflecting record-high output by OPEC nations last month. Also weighing on oil prices was data that revealed the US oil rig count had climbed by 44 rigs in July, the highest monthly increase in over two years. Crude continued to trade within the channel in the month of June and July to meet almost our target of $52-$54 levels. It made a high of 51.75 on 9th June and corrected thereafter for a good correction of roughly 23% since then and it seems the correction is over now .Break of downward sloping resistance confirms the correction from 51.75 is over and the commodity will look to head towards  our first target of 41.89 levels and then 43-44 levels in coming weeks however it is to be noted that a break of 44 level on the upside is needed to confirm the bigger correction is over and bring back  the focus back on $50-55 levels again in the medium term .In the immediate near term  the range looks to be 40-44 levels now and it may look to consolidate.

Expectation from BOE meeting today

Author:-Mr. Nitesh Sharma

Posted Date:-04-Aug-2016

I hope my readers could have made good money out of my last  GBP report sent ahead of the Brexit vote. Our investors made a return on 500% on the brexit vote , though it was a jackpot and such returns come only once in two years .The Bank of England meets today for the second time post Brexit vote, and after failing to deliver in its July meeting, expectations are too high for some sort of easing measures to prevent the economy from falling into a prolonged recession. Although GDP and employment figures releases last month showed some strength, the central bank will look beyond them as they’re only lagging indicators. In fact, PMI data for July showed significant deterioration in sentiments within all economic sectors. This probably isn’t enough to completely assess the short term-impact on the economy, but would certainly spur the BoE to take action.

Since policymakers met in July14, Sterling has been moving in a range of 1.2750 – 1.3480, and it would require a big surprise to see a breakout from current range. On the upside only a break above 1.3480 level will confirm the medium term downward trend is over and market will eye 1.39-1.41 level in coming months  after which it is expected to resume the fall again. On the downside break of 1.2750-1.28 will be difficult at the moment. Markets have already priced in a 25 basis point rate cut, and I do not expect any steeper move in this meeting. Probably a 100 pips movement on the either side is expected post BOE meet. Markets will be closely watching Mark Carney’s comments on how low interest rates can go and whether negative rates are an option.

The BoE might also extend its funding for lending program which was originally launched in July 2012 to continue encouraging banks to lend to the economy, but the big question is whether the central bank will restart their asset purchase program currently at £375 billion. I will be surprised if the BoE sits on its hands today and does nothing, at least a 25 basis points rate cut for now, and any action beyond that will likely take Sterling below 1.30 against the U.S. dollar. From the medium term perspective we should watch out for 1.3480 on the higher side and 1.2750 on the lower side to get a better clarity for GBP direction. In GBP/INR the pair is expected to consolidate between 88-90 in the very short term.

Is Nifty's optimism becoming EUPHORIC?

Author:-Mr. Ritesh Victor

Posted Date:-01-Aug-2016

In my last research (dated 18 July 2016 – please check the trailing mail), had indicated that we will re-evaluate our bearish Nifty view if 8600-8650 breaks. Well, that range did break and we saw an intra-day peak of 8711 today (the highest level since mid April-2015). Intra-day, it fell below 8600 but recovered to close at 8636.

 

What now?

Technically, a Spinning Top formation today on the daily candlestick chart does not bode too well for the Nifty. Spinning Top is formed when upper and lower shadows are long and deep, along with a relatively small real body. It tends to indicate indecision and confusion. After a long and sustained rally, a Spinning Top indicates a potential change and a possible interruption of the bull run. Momentum indicators are still overbought – negative divergence on the MACD continues. Trading volumes are still lower. Three up-gaps (around 8350-8410, around 8210-8240 and around 7760-7810) are yet to be filled.    

 

On the fundamental side, corporate earnings have been moderate (some good, mostly below par) – nothing great to fuel such an equities rally. So, it is GST and good monsoons that’s doing the trick. My sense is, GST has been fully priced in – no major rally in Nifty (not more than 100 points) and in Rupee (not more than 40-50 paise) – if the bill actually get through (does anyone doubt it will not get through?)

 

It is already BUY THE RUMOUR. Let’s await, SELL THE FACT.

Nifty's phenomenal bull run continues......CAUTION is still the key

Author:-Mr. Ritesh Victor

Posted Date:-18-Jul-2016

There is no stopping Indian equities.

 

Had indicated in a research piece (dated 1 Jun’16 – please see below) when Nifty was around 8180, that there will be a decline towards 7700-7800. Well, Nifty did decline towards 7930 (Post BREXIT) and swiftly recovered. Since then we all know what has happened. My sense is that all good news (GST, above average monsoons, smooth transition post BREXIT, etc) have been discounted. My worry is the possible market reaction to any bad news – not that I look forward to bad news (please do not relegate/brand me a pessimist).

 

Nifty’s bull run has formed a few up-gaps (again!!! – the gap of 7700-7800 is not filled as yet). There are gaps around 8200-8250 and then at 8350-8400 too. Momentum indicators are comfortably overbought. MACD is about to give a “SELL” signal – there is a visible negative divergence too (notice the purple lines on Nifty chart and its MACD). Trading volumes since early June has been on a downtrend – indicating lack of broad based confidence. Technically, the tilt is towards a Nifty fall. First target 8200-8300.....Next target 7700-7800. Its Nifty Puts again.

 

If Nifty forms a new 2016 high and moves beyond 8600-8650 – will re-evaluate to understand what else is conspiring.

Rupee loosing correlation with Yuan?

Author:-Mr. Ritesh Victor

Posted Date:-04-Jul-2016

Rupee weakened to a low of 68.22 (on 24 June 2016) and closed price gaps around 68 (as I had indicated it would - please check my research dated 11 June 2016 below). BREXIT and REXIT were enough to pressurize our fragile (or is it resilient?) currency.

 

Rupee followers would have noticed its strong correlation with Chinese Yuan for quite some time now. Such a correlation looks to be broken since last week of June – evaluate this – from a high of 6.5675, Yuan has weakened consistently, to 1.32% till today’s close of 6.6610. In the same time frame, rupee has been volatile, weakening to a low of 68.22, but recovered handsomely to close today at 67.2650 (largely unchanged).

 

DATE

USDCNY

% Change

USDINR

% Change

23 June 2016

6.5740

 

67.2500

 

4 July 2016

6.6610

1.32%

67.2650

0.02%

 

With China’s Central Bank willing to let the Yuan devalue towards 6.80 to support their struggling exports, rupee will ultimately face the music (sooner than later). My sense is that rupee cannot gain (in isolation) if Yuan continues to weaken. Levels around 67 figure should act as a strong dollar support. A re-attempt towards 68 looks likely.

 

Exporters: Do not do forwards now, since spot has moderated. Use vanilla puts (select at-the-money strikes). USDINR volatility is low and hence option premiums are relatively cheap.

Importers: do short term (1 month) forwards (spot levels of 67.20 looks good having seen 68.00 - 68.20 recently). Should do some at-the-money call options too.

 

Check below a rebased USDINR, USDCNY and Dollar Index chart – rebased since 2 May 2016 till date. Notice the red solid line (Yuan) moving in tandem with the green solid line (Rupee). Also observe the divergence since the last week of June.

USD/INR- H1 Review and Outlook in H2 2016

Author:-Mr. Nitesh Sharma

Posted Date:-27-Jun-2016

 

6 months have gone  in 2016, so it’s time that to  review my previous view  and share my forecast for H2 .In our outlook for 2016 which was sent on 31st Dec 2015,  I have sighted few factors that could have impacted rupee movement in the year 2016 ( new readers can read below my earlier mail for reference) and given my range for rupee at 65.60-70.40 then in Dec 15.Rupee continued to trade between the ranges until now and I don’t find much reason to alter my range given on the upside. The factors were Global growth, China Impact , Dollar strength, 34.3 bn FCNR(B)  repayment  in Sep-Nov 2016  raised in Sep 13.

 

The year started with the fall in Shanghai by 16% lead by fall in crude prices and global growth concern( rupee depreciated by 3.8% to 68.79 from 66 levels). After this the focus shifted to Fed rate hike outlook and market was driven by monetary policies and data until recently when the noise of FCNR repayment is brought to the notice of corporates , followed by Rajan exit and now Brexit where we saw rupee volatility rising again. While I considered FCNR impact , USD strength , China impact, CNY devaluation in our outlook but we missed the Brexit factor and Rajan exit to consider. Rupee has depreciated by 3% in this year and we may see some weakness ahead in coming month.

 

Outlook H2:

 

As we move into second half of the year, the immediate danger is the Brexit impact on the financial markets. Market will be more risk averse in the near term and will push rupee towards all time low of 68.80 levels which should be protected by RBI to stop rupee to move to closer to 70.For H2 the range for the rupee will be 66.50-70.40. As we progress in August market talk of GST passage will be heated which can bring rupee back to 67 mark if the bill is passed else 70 looks imminent in Q3 around Sep-Nov ’16 before closing the year between 69-69.50.

 

FCNR(B) maturity:

It is expected that the expiry of these FCNR (B) deposits will lead to outflow of dollar liquidity from the Indian markets if dollar counterparties (exporters) fail on their commitment There may be couple of  ways to deal with the FCNR repayment. RBI may accumulate reserves in the period leading upto the Sep-Nov’2016 , which its seems to be doing as our reserves have grown  from $350 to $363 in a month. Then in Sep-Nov 2016 RBI could allow its reserves to dip to provide dollars to the market as Rajan had hinted in the monetary policy meet recently. Additionally, Government may issue a Sovereign Dollar bond to make up for the potential dollar shortage , this possibility has been hearing for years but looks unlikely.

CNY devaluation

China impact will not be over yet as I have shared multiple times that CNY can depreciate upto 6.8 mark  this year against 6.61 now, so another 2.5-3 % depreciation from the current levels can lead rupee to 70 mark. We cannot isolate India from its peers. Currency war may continue to be seen in

GST Bill

While all factor pushes the rupee lower but the only silver lining is the GST bill passage which can bring a sentiment back into rupee side and check its sharp weakness. It’s difficult for me to put any levels on the downside but as I keep saying only break of 66.50 now can change our sentiment of Rupee from bearish to bullish.

Dollar strength

Euro may head towards parity by year end on account of Brexit and fears of other European nations calling for referendum .With euro falling and global dollar strength , it can trigger sharper fall in the rupee.My personal target in Euro is 1.046 and bottoming at 1.01 by year end before sharp reversal .

Will GBP/USD's Brexit Relief Rally Sustain Itself?

Author:-Mr. Nitesh Sharma

Posted Date:-21-Jun-2016

As per my last mail GBP/USD pair failed to sustain above  1.47 mark and retraced from 1.4728 high below our target of  1.4192 and much lower towards 1.4008 low formed last week.Range of 1.40-1.41 was expected to hold and on the upside strong resistance is seen between 1.4720-1.4770 levels ahead of the Brexit. Traders who have been selling the pound either in the hope or expectations of a British exit from the EU had probably enjoyed a good run of form in recent times. Recently what happened to some of the participants when the markets opened overnight with a huge gap in response to the latest opinion polls on the issue of Brexit, which showed that the two camps were running neck and neck at 44% each as Remain gained ground over Leave. The overnight gap then ballooned as some more of these bearish speculators were probably forced to exit their positions and the bulls entered the fray. Consequently, the GBP/USD has enjoyed its best one-day performance since December 2008.

The latest twist in opinion surveys was  reflected , when the tragic killing of a British MP triggered the suspension of the campaigns, leading to speculation that the Leave camp will now lose support - which is exactly what has apparently happened. Of the 535 respondents, 50% think that the UK public will now vote in favour of Remain and only 42% think they will still vote for Leave. The remaining 8% is not sure.

This was a survey about how people thought the UK public may vote, not necessary how they will vote. So the results may be a reflection of the current positive sentiment. Needless to say, we do need to wait for the outcome of some of the actual votes that will be released in the early hours of Friday before one can be more certain about the final outcome. As such, opinions and therefore votes could still change, especially given the fact that the Leave and Remain groups have resumed their campaigns now.

How will the pound react post the Brexit vote?

While the initial reaction of the GBP may well be how you would expect it to be, traders may recall that in the result of the Scottish referendum, in September 2014, the pound initially jumped against the dollar when Scots voted against leaving the UK, before the bear trend resumed.

A lesson we can learn from this is that no one knows for sure what will actually happen in the future, as clearly there are other fundamental factors at work, too. In addition, not all market participants are rational thinkers. How do you know that all (or most) of the market participants are thinking the same way as you do - and not only that, how do you know they will act on their thoughts by trading that way? Furthermore, even if most market participants do what you think they will, how do you know they won't take quick profits on their positions, which could reverse the trend quickly?

Clearly, the burst of bullish momentum means the pound may be overbought in the short-term, but that doesn't necessarily mean it cannot go further higher. Actually, the GBP/USD's short-term price action will be very important because, as the weekly chart shows, below, one can see that the cable is banging against a major resistance area in the 1.4720-1.4770 area. Here, the prior highs converge with a bearish trend line that has been in place since July 2014. With the EU referendum still posing a major risk event for the markets, the GBP/USD may be unable to break through this region with ease or until at least the outcome of the vote is released. If it does break through here however, it could trigger a new wave of momentum buying rage. However traders will also want to look for signs of failure to hold above this region of resistance, as this outcome could potentially lead to another big move - this time to the downside.

But will it be different this time? If GBP/USD is able to break and then hold above the 1.4720-1.4770 resistance region by early next week then we may see a more constructive, long-lasting, bullish performance from the Cable than we did in the aftermath of the Scottish independence vote. However, for the GBP/USD's long-term bearish trend to end once and for all, there will need to be a marked improvement in UK data to encourage the Bank of England's monetary policy committee (MPC) to end its current dovish stance.

In short, you will see a lot of volatility in the coming days, but ultimately I am not sure if the GBP/USD will be able to sustain the potential gains it may make post the referendum, assuming the vote will be in favour of remain. Needless to say, if the UK public votes in favour of leave then we could see a significant drop in the GBP/USD and other GBP pairs.

USD/INR- Break out by July end-August

Author:-Mr. Nitesh Sharma

Posted Date:-15-Jun-2016

I was going through the monthly chart of the USD/INR pair which I do regurly ( see chart below)  and expect rupee to break out with sharp volatility probably by July end or in August .With the converging line , joining upper and lower trend line as we see on the chart, rupee will most likely breakout of 66.85-67.75 range in the month of August. As a technical chartist my first thumb rule from trading perspective will be to sell on the break of Trend line which is the long term support now at 66.60-66.85 mark or keep buying around 66.85-67 with a tight stop loss. No change in view until the trend line breaks. If we see the historical chart on June 2013 where rupee broke out of that tight range to test 60 in two months from 55 levels ( I was lucky to capture the move from 55-60 then ) and in  4th  quarter 2014 after rupee moved out of 60 hurdle to settle around 62.Similar pattern is being formed now and I will be very cautious from Mid July.

 

While I have many negative factors to support rupee weakness among which common factors which everybody knows  would be global USD strength, CNY weakness, $ shortage and pre positioning because of FCNR repayment in Oct-Nov, while on the other hand the only reason that can help rupee break the 4 year rupee weakening Trend can be the passage of the GST bill in the monsoon session. The monsoon session starts on 21st July 2016- 13 th August  2016.Can a passage of GST bill revive sentiment to an extent that can help rupee can reverse a 4 year downward trend. I don’t know the answer when I know the impact of this GST bill if passed.It will get implemented next year and the impact on the GDP from 1-2% can actually be seen only in FY 17-18.I am also quite bullish on the NIFTY to test 8600 mark in coming months with downside limited to 7850.

 

As shared in previous mails the range for the month of June is intact between 66.85-67.50 with extension limited to 66.50/67.75.We saw quick surge in INR towards 66.5450 last week but bounced back from there (which was a long term trend line support) to stay within our range of 66.85 to 67.50.Importers may stay hedged between 66.85-67.05 and exporters may cash in between 67.40-67.50 for the current month.

Lull after the storm?

Author:-Mr. Ritesh Victor

Posted Date:-11-Jun-2016

Had published a research on 5 May 2016 (see mail below) regarding low rupee volatility and an increasing possibility of heightened volatility. Well, rupee volatility did surge in the second fortnight of May 2016, when it broke beyond the stable range of 66.10-66.70 to touch a 2-month low of 67.77. Rupee took two weeks to recover and was back at 66.60-70 range.

 

What’s in store ahead?

Had repeatedly emphasised in the past about 66.00-66.50 being strong long term dollar support region (blue dashed line and pink dashed line). I continue to do so.

There are price gaps between 67.05 – 67.15 (purple horizontal lines) and 67.76 – 67.85 (red horizontal lines). There was an attempt towards 67.77, but the gap could not close fully. The 200-day simple moving average comes around 66.59 – this could be a crucial support level. Momentum indicators and Slow Stochastics are neutral.

 

My sense is a rupee weakening move towards 67.80-68.00 region (to close the two price gaps). There are a lot of critical events lined up – FOMC on 15 June, BREXIT referendum on 23 June, ECB monetary policy meeting on 30 June. Policy changes / Chairman’s comments will certainly keep markets volatile.

We too have our critical events - REXIT (Rajan’s exit) and FCNR (B) redemptions in Sept-Oct2016 – though these are slightly ahead in time, media focus will keep the rupee perplexed (and volatile).

 

How to manage forex risk?

Exporters: use vanilla puts (select at-the-money strikes). Rupee stability has ensured low volatility and hence cheaper option premiums. Do not do forwards since spot is low.

Importers: do short term (1-2 months) forwards (spot levels of 66.75 looks good having seen 67.50-75 recently). Should do 30-40% at-the-money options.

Oil Outlook-$ 50 target met... Eyeing $55-$60 in medium term

Author:-Mr. Nitesh Sharma

Posted Date:-07-Jun-2016

Oil prices were trading noticeably higher today with Brent which was thus just shy of this year's high of about $50.85 hit last week, while WTI was not too far off its own 2016 high of $50.20 achieved a couple of weeks ago. Oil prices have been finding support from various sources of late. Obviously we can't ignore the temporary influence of supply disruptions in places such as Nigeria, as well as the indirect impact of an overall weaker US dollar. But these factors play second to growing expectations of a tighter oil market later this year which remains the primary driver behind oil prices at the moment. But more important is how resilient crude has been to this and other oil-bearish news, such as the inaction from the OPEC last week. To us, the refusal of oil prices to go down on bad news suggests that it may be just a matter of time before WTI prices climb decisively above $50 a barrel again for a target of $60. That being said, I don't expect to see oil prices rise more than $65-$70 a barrel this year as shale producers could simply step back in and flood the market with more oil in this competitive market. I will look to revisit my view again once I achieve $55-$60 mark.

 

The key risk to the above bullish scenario is if US oil production stops declining now that the rig counts there have increased once again. A small and sustained rise in US oil production, if seen, could turn sentiment sour very quickly for the rest of the major oil producers are pumping oil near record levels and Iran is continuing to increase its market share

 

OPEC members met in Vienna on Thursday, but failed to reach any agreement on production targets. This follows a meeting in Qatar back in March, which also ended without an agreement. Given Iran's consistent refusal to agree to any type of reduction or freeze, I do  not expected any breakthroughs at the Vienna summit. With the world's major oil producers continuing to function under the mantra "every country for himself", it is the market that will determine the price of oil. 

 

What’s on Chart?

 

We met our first target of $ 50 as shared in trail mail earlier and revised my medium term outlook to $55-$60 levels. From a technical perspective, WTI's tight consolidation just below the psychologically-important $50 hurdle suggests that a breakout above this level may be imminent. The hesitation here has allowed the RSI momentum indicator to unwind from “overbought” levels of 70 mainly through time than price action, which is bullish. The RSI is also holding above its own bullish trend line, suggesting the bullish momentum remains strong. But for oil to make a decisive move higher, $50 needs to be cleared soon, otherwise a deeper correction may be required in order to encourage buying interest. Generally speaking, the outlook on WTI remains bullish for as long as it remains within the bullish channel. As seen on the chart the price is moving within the upward moving channel and in next couple of  few days it’s important to take away the high of $50.20 for immediate target of $52-$54 levels. On the downside the immediate support lies at 43.50-44.50( 50% Fibonacci retracement of the move from 62.58 to 26.06) which is expected to hold in the near term.

USD/JPY outlook

Author:-Mr. Nitesh Sharma

Posted Date:-06-Jun-2016

We met our first target in USD/JPY at 107.50 post NFP data as shared in previous mail. The sell/supply  zone of 110.75-112.50 as we shared earlier was rock solid and I continue to stay bearish in the pair for possibly testing 105.55 levels in coming weeks. Any correction from here will find resistance around 108-108.20 mark initially and  after falling to 106.37 on Friday some sideways consolidation above this levels would be seen. A correction towards 108 levels cannot be ruled out, however, think price would falter below 108.05-10 to bring another decline towards 105.55 levels. On JPY/INR pair upward pressure towards .Importers who missed out levels .6050-.6100 levels , should not chase for any gains beyond .6150-.6175 now and should be hedged if any dips seen around .6150-.6175 for a target of .6350.Upward move towards .6350 looks imminent.

EUR/USD: Dollar hammered as payroll disappoints

Author:-Mr. Nitesh Sharma

Posted Date:-06-Jun-2016

EURO/USD made a low of 1.1097 on 30th May , within our target range of 1.1050-11 and bounced back to 1.13 as expected and  as shared previously in trail mail. We had warned our euro exporters for staying short around 1.11 levels and reversal was looking imminent. June rate hike dashed after  poor US nonfarm payroll after job creation slowed to 38000 in May. While market was pricing in a June rate hike earlier but post NFP data the chances of June hike has become unlikely.

 

Focus will now shift to Yellen's speech today post disappointing payroll data. Yellen of course can't ignore the disappointing US payrolls report but at the same time, i don't expect Yellen to make a real U-turn. She will also take into account the decline of the unemployment rate and decent wage growth. However, Yellen's comments might be slightly less dovish than markets expects after Friday's payrolls.

 

What’s now on Chart?

 

We played end to end between 1.11 and 1.1370 levels till today and  would like to stay neutral now between 1.1250-1.1450 levels in the near term.I do not rule out further upside in euro possibly toward 1.1450 mark hence it will be prudent to stay away for a while before we get better clarity.On Eur/INR the play was limited to 74.80-76.20 as advised earlier and the pair made a low of 74.50 and bounced back today to 76 .Near term trading range has shifted to 75-77  from 74.80-76.20 and not expected to hold beyond this range.Daily Momentum indicators is neutral .

Caution in Nifty's phenomenal run!!

Author:-Mr. Ritesh Victor

Posted Date:-01-Jun-2016

Nifty has had an amazing run since the beginning of the current financial year – a handsome return of 6% in just 2 months. Modi led NDA government has been taking genuinely progressive steps – efforts on infrastructural developments are gradually paying off – our Q4 GDP grew a healthy 7.9% (year on year). Couple that with Meteorological Department’s forecast of above par monsoon, and there was no stopping Nifty.

 

Will this phenomenal run continue? Caution is the key.

 

Analyzing the daily chart, one can notice a trendline resistance around 8200-8250. The 61.8% retracement of the move from 9119 (4Mar’15 – all time high) to 6825 (29Feb’16 – multi year low) comes at 8242. Momentum indicators are getting increasingly overbought – there is a visible divergence in Slow Stochastics. Up gap at 7761 – 7803 (24-25May’16) – notice the blue parallel lines. Trading volumes have remained static – not reflecting Nifty’s optimism – probably suggesting lack of widespread participation. Increasing indications that 8150-8250 will be a critical resistance area.

 

What lies ahead? My intuit is a move towards 7700-7800 (to close the daily gap). Makes sense to buy Nifty puts.

 

Any move above 8300-8350 will rescind my judgement.

USD/INR- Under Cup and Handle formation??

Author:-Mr. Nitesh Sharma

Posted Date:-30-May-2016

For non- technical charting readers , if I were to explain a  Cup with Handle- It is a bullish continuation pattern that marks a consolidation period followed by a breakout. Here the break out was at 66.85 and market is looking to consolidate as shared earlier in previous mail between 66.85-67.75. As its name implies, there are two parts to the pattern: the cup and the handle. The cup forms after an advance and looks like a bowl or rounding bottom as seen in the chart below. As the cup is completed, a trading range develops on the right hand side  and the handle is formed. A subsequent breakout from the handle's trading range i.e. 67.75-67.85 signals a continuation of the prior advance. The projected advance after breakout can be estimated by measuring the distance from the right peak of the cup to the bottom of the cup. Here the distance between the cup line to the bottom will be the target on USD/INR if this patterns hold true and were to believe.

 

As expected ,rupee bounced back from 66.85-66.95 support to test our first supply zone today at 67.25-67.35 levels. I have very little doubt that if 67.75-67.85 levels are breached we may surely see 68.60-68.85 mark again ( last seen in Feb) in coming months or weeks. And if this cup and handle formation is correct than our calculation comes around 69.40 levels something in line with my year estimate for rupee( refer my mail sent on 31st December 2015,” USD/INR outlook 2016”). With a hike probable in the coming months if US data follows a positive path, sentiment towards the US economy continues to improve, and this may empower the Dollar bulls further which may put additional pressure on the USD/INR pair. We should not forget the correlation between CNY and USD/INR.Its simple, track CNY to get a hold on USD/INR.

 

What’s on the chart?

 

Having shared the cup and handle formation above which is more relevant for 2-3 months view , in the very near term second level of buying will now be seen between 67.05-67.15 levels for a target of 67.40.Break of 67.40 will shift the trading range  to 67.25-67.85 for remaining part of the month. On the downside only a break below 66.85-66.95 levels will force us to revisit our bearish view on the pair.Importers now should not chase for gains below 67 now and advised to stay hedged between 67.05-67.15 levels.

USD/INR :66.85-67.75 level intact

Author:-Mr. Nitesh Sharma

Posted Date:-27-May-2016

Our advice was very precise. As per the below mail we saw rupee end to end playing within our set upper range of 67.50 with extension limited to 67.75 which was a good opportunity for exporters to sell and take advantage of premium. Rupee made a high of 67.77 on 24th May and retreated thereafter quite sharply on account of inflow into the equity market. On the lower end 66.85-66.95 support is rock solid and is expected to hold  and importers should not chase for any gains beyond that levels. In context to the importers today’s 67.02-67.05 levels is also not that bad who missed out earlier levels to stay hedge.

 

What’s on chart?

 

As seen on the chart , rupee retreated from 67.75 mark being  61.8% Fibonacci retracement resistance for the fall of the pair from 68.77 to 66.08.From here I expect the downside to be limited to 66.85-66.90 from where I expect the pair to bounce towards 67.25-67.35 levels .End to end for the  month of june the pair will be expected to trade between 66.85-67.50 now .66.85-67.05 levels looks good for importers and as suggested in earlier mail  for importers and  now it’s time for importers to keep themselves hedged while Exporters may wait and cash in around 67.25-67.35 levels. Momentum indicators hints sideways trading for next couple of weeks.Time for some consolidation!

USD/JPY outlook

Author:-Mr. Nitesh Sharma

Posted Date:-27-May-2016

USD/JPY has drifted throughout the week around 110 handle  and the trend continued today as well ahead of Yellen speech, as the pair trades at 109.63 as I write. Tokyo Core CPI, the primary gauge of consumer inflation, dipped to -0.5% against the expectation of -0.4%, marking a fifth monthly decline. The Bank of Japan has had little success in fighting deflation, which has hampered the economy. The yen showed little reaction to the soft inflation numbers. The currency has appreciated about 9% in 2016, hurting the critical export sector. Japan has threatened to intervene if the yen continues to strengthen, but the US has warned Japan against any unilateral moves. This disagreement surfaced at the G-7 meeting of finance ministers, with the US and Japan publicly bickering over whether the yen’s rise has been “disorderly”.

 

What’s on the chart?

 

Once again the US Dollar weakened against the Yen , unable to climb over the 110.25-110.45 level for the fifth consecutive time and bulls attempted to break above 110 handle but failed to gain ground. The 110.25 mark appears to be providing strong resistance, as the USD/JPY currency pair was unable to climb beyond that area for two weeks now. Furthermore, the rising wedge's/ascending traingle support line in a 4 hourly chart was put to the test again  which is supported at 109.50 now, which could lead to an ultimate downside breakout today. Any break of 109.50 will see immediate test of 109 and a likely move back to 107.50 levels.On the upside only a break above 110.75 will open door to a very strong resistance zone at 111.75 but eventually 110.75-112.50 will act as a very strong resistance which will  ultimately push USD/JPY lower in the medium term.

 

What we see in chart below is:

§  On the H4 chart, price is, thanks to the rising H4 trendline as shown in a 4 hourly chart , collectively forming a wedge/ascending traingle like formation.

§  Looking over to the daily chart, we can see that there’s also a daily trend line resistance formed from the high 114.44 converging with the above said daily resistance line which gives a significant reason to believe that USD/JPY may fall.

§  Weekly price continues to gravitate in the direction of a weekly supply zone given at 113.80-111.59 ( chart is not shown).

 

The selling pressure on the pair looks imminent .

EUR/USD may extend fall to 1.1050-1.11 in coming few days

Author:-Mr. Nitesh Sharma

Posted Date:-24-May-2016

EUR/USD is steady , continuing the lack of movement which has characterized the pair since last week. The pair is trading at the 1.12 handle.ECB held the course in April and kept the benchmark rate at zero. At the April policy meeting, ECB president Mario Draghi said that he expected interest rates to remain at current levels or lower for an extended period, warning that he would take action to combat the threat of deflation. Although there has been some improvement in growth in the Euro zone, inflation levels have not improved, as seen  last week’s Eurozone Final CPI.With the threat of deflation posing a major headache for the ECB, Mario Draghi is under strong pressure to take action and bolster inflation. However, it’s questionable if the ECB has any monetary ammunition left, as interest rates are at zero and the QE program was expanded earlier this year. Further easing would weaken the euro, so the fact that the ECB has remained on the sidelines has helped the euro trade at high levels.

The highly-anticipated Federal Reserve minutes were more hawkish than expected, resulting in strong volatility in the global currency markets. The US dollar posted strong gains against most of the major currencies, including the euro, which is struggling to stay above the 1.12 level now ( initially it was struggling to stay above 1.13). The minutes indicated that a June rate hike remains firmly on the table, and the currency markets have reacted with strong volatility. According to the minutes, the Fed wants to see stronger growth in the second quarter as well as better numbers from the inflation and employment fronts. If this is achieved, the Fed said it “likely would be appropriate” to raise rates at the June meeting. This message is somewhat hawkish in comparison to recent statements by Fed chair Janet Yellen, which were more cautious about the strength of the US economy. The minutes have drastically changed market sentiment, however, since it’s clear that the June meeting will be crucial, as it could mark the Fed’s first interest rate hike this year. With the Fed saying that a key factor in a rate hike decision will be the strength of the US economy, upcoming major economic indicators will be under the market microscope, particularly inflation and employment numbers.

 

What’s on chart?

 

As seen on the chart Euro is trading in the downward slopping channel formation with now risk of downside open for 1.1050-1.11 levels in next couple of days until and unless 1.1250 on the upside is not broken, 1.1250 is the upward channel resistance. Hence break of 1.1250 on the upside today or tomorrow will confirm the downward correction in EURO is over , until then we are hopeful to see euro testing 1.1050-1.11 levels before a big reversal back to 1.13. We will be careful now as momentum indicators are very oversold with RSI and Slow stoc at 39 and 16 respectively .In EUR/INR the near term range is limited to 76.20 on the upside  and 74.80 on the downside. Breakout of either side is not expected to hold.DXY looks to be pushing the crucial resistance of 95.25-95.50 to test 96.20 and USD/INR to test  67.75-67.90 levels post break of 67.40-50 levels  before correcting. We will be carefully watching any trend reversal signal in the pair and index.

USD/INR :67.10-67.20 target met

Author:-Mr. Nitesh Sir

Posted Date:-19-May-2016

We met our first target of 67.10-67.20 levels today in line with the time we expected. Break of 66.85 neckline of the double bottom formation  was crucial for the trend reversal confirmation .Global dollar strength on account of hawkish FOMC minutes was the trigger for a gap up opening in rupee today at 67.15 reconfirming a reversal in the pair.

The modestly-hawkish FOMC minutes for the April 28 meeting lifted hopes of June rate hike. Policymakers generally judged that it might be justified to increase interest rates in June if economic data suggest growth were picking up in 2Q16, job market continued to improve and inflation were making progress to reach the +2% target.

 

What’s on Chart?

 

As shared in the previous mail , any further weakness in Rupee from the current levels will find resistance initially at  67.40-67.45 which is a 50% retracement of 68.76 and 66.07.On the downside we do not expect rupee now below 66.85 and hence as shared on May 6  the trading range has shifted to 66.85-67.50 with extension limited to 67.75 for the month of june.Importers who missed out earlier level may stay floated for any correction between 66.90-67 levels while exporters should start hedging  around 67.40 levels and take advantage in forward premium because of  time decay.

Dollar Index (DXY)- Dollar boosted by Hawkish Feds speak

Author:-Mr. Nitesh Sharma

Posted Date:-16-May-2016

Dollar surged broadly last week as hawkish comments from some fed officials revived talks of rate Hike in June.USD was further supported by retail sales figures.DXY jumped to close at 94.60, affirming a trend reversal as seen in the below chart, but it should be noted that Fed futures are pricing a very slim chances of rate hike in June , only by mere 4%.It should be further noted that Fed is facing some important risks like extended weakness in Chinese stocks and in particular EY referendum in UK scheduled on 23rd.These are more reasons for Fed to hold than hike rate in June.

 

What’s on Chart?

 

As seen on the DXY chart , break of 94.50 on the upside confirmed a trend reversal. Fall from 100.51 to 91.90 is over and on the immediate near term index will focus to test next resistance at 95.25-95.35 ( 38.2% retracement of the fall from 100.51 to 91.90 ) from where a brief correction till 93.85-94 is expected before resuming its upward move till 96.50-97 levels. Hence for next few weeks its safer to ride on the dollar bulls and keep buying $ on dips, hence sell Euro and Pound on upticks. Euro and Pound may test 1.1210 and 1.4290 this week and USD/INR 67.10-67.20 as shared in separate mail . The range for near term will be 93.85 to 97 levels ( currently at 94.64). 

BOE warns Brexit could lead to sharp slowdown in UK.

Author:-Mr. Nitesh Sharma

Posted Date:-13-May-2016

Yesterday we saw BOE rate decision and more importantly the press conference .The Bank of England warned Britain's economy would slow sharply, and could even slide into recession, if Britain voted to leave the European Union. The central bank added the Pound could decline sharply, while unemployment would probably climb. Consumers could delay spending and companies may postpone investment decisions. BoE Governor Carney said there were limits to what the BoE could do in response to an 'Out' vote. Opinion polls show British voters have been relatively resistant so far to warnings about the economic costs of Brexit, with voting intentions in many polls roughly evenly split. Voting is scheduled for 23rd June.

The Bank of England's May Inflation Report estimates that inflation will return back to the 2% goal by mid-2018, with the Brexit uncertainty weighing on the short-term growth outlook. Given the current threats, even with the UK remaining part of the EU, the BoE is not expected to hike interest rates before 2018 and pound can be under pressure.

 

What’s on Chart?

 

It’s been quite a long time that I have shared a chart on GBP.As we see on the chart the medium term downward sloping trend line is still holding around 1.47 mark and it is expected to hold in the near term as well atleast till the brexit voting is over. In the near term I expect the pressure on the pound will continue and any move above 1.45 will be difficult to hold and market will expect 1.4250 level in the near term.Range for the near term looks at 1.4250-1.45 levels with downside open for 1.4192(61.8% Fibonacci retracement for a GBP move from 1.3839 to 1.4779 ) which should hold.in GBP/INR pair 96.50 levels will hold on the upside and on the downside the move will open room for 94.50-95 levels in the immediate term.Keep selling !

Lull before the storm?

Author:-Mr. Ritesh Victor

Posted Date:-05-May-2016

Rupee has been unusually stable for a long time – since 17 Mar’16, the amplitude (high low variance) is a meagre 88 paise (or 1.3%). During this period, volatility (or amplitude) in others were as follows:

 

 

HIGH

LOW

AMPLITUDE

%AGE

ZAR

15.74

14.09

1.65

10.5%

BRL

3.744

3.4284

0.3156

8.4%

RUB

69.69

63.9575

5.7325

8.2%

JPY

113.8

105.52

8.28

7.3%

MYR

4.128

3.843

0.285

6.9%

GBP

1.4769

1.4004

0.0765

5.2%

KRW

1173.2

1123.49

49.71

4.2%

EURO

1.1614

1.1142

0.0472

4.1%

TWD

32.75

32.05

0.7

2.1%

INR

66.9525

66.07

0.8825

1.3%

CNY

6.5202

6.447

0.0732

1.1%

 

The table above shows that rupee has remained static in isolation – the R currencies (South African Rand - ZAR, Brazilian Real – BRL, Russian Rouble – RUB) and some of the Asian currencies have traded quite volatile. 

Gold-$1300 target met

Author:-Mr. Nitesh Sharma

Posted Date:-05-May-2016

We met our first target in gold at $1300 troy ounce this week to make a high of 1304 on Monday  and retreated thereafter to 1271 from  our initial resistance zone of 1300-1325 levels as shared in our previous mail report( scroll down to read previous report). Gold prices continue to move upwards last week, the metal surged 4.8% last week and briefly pushed above the $1300 level earlier on Monday. This marked the first time gold has traded above $1300 since mid-January. Gold has taken advantage of the Federal Reserve's decision not to raise interest rates and also benefited from a soft US GDP release last week.

 

Yesterday the ADP report showed an increase of 156K jobs, missing the market's 195K expectation. While this opens the door for a possibly weak Non Farm Payrolls number on Friday night , so my thinking around the release is that we might see some pricing-in of a poor NFP number with some USD selling as we head into Friday, but with that comes the possibility of any positive number causing a shock jerk to the upside. Hence can expect gold to bounce back ahead of the payroll figures on Friday.

 

What’s on the chart?

 

If my readers go through my previous chart, then would understand how the inverted head and shoulder worked precisely for us. Our neckline resistance coincided at 1300 levels as seen on the chart and from there itself Gold has corrected to 1271 and currently trading at 1282 levels. In the near term I am still biased towards upward movement towards 1300-1325 levels and near term consolidation can be seen at 1260-1325 levels. Only a break below 1255-1260 levels will confirm a temporary top has been formed at 1304 which I feel looks unlikely. Hence continuing from my last mail keep buying on dips for genuine gold buyers and traders for our second target of 1324 levels which will complete our inverted head and shoulder formation.

Will Nifty's impressive bull run continue?

Author:-Mr. Ritesh Victor

Posted Date:-22-Apr-2016

Nifty has had a consistent bull run from the multi-year low of 6825 to the recent peak at 7978. Though the run has been impressive, the indicators (RSI and Slow Stochastics) have turned overbought. In the recent past, momentum has clearly diminished and there are visible negative divergences on 7-day, 14-day and 21-day Momentum indicators. There are negative divergences on MACD Forest and Slow Stochastics too.

 

The downward moving trendline (white solid line) connecting the peaks since Mar’15 is around 7850-7900. The 200-day moving average is at 7864. The previous peaks formed in Dec’15 and Jan’16 are around 7950-7980. All of these seem to suggest a strong Nifty resistance area around 7900-8000.

 

Moreover, there are two large price up-gaps – first between 7235 and 7308 (pink horizontal lines) formed on 1-2 Mar’16 and the next between 7717 and 7772 (yellow horizontal lines) formed on 12-13 Apr’16. Price gaps in Nifty usually tend to fill.

 

Am I suggesting a Nifty decline towards 7200-7300? I AM.

 

If the Nifty surges, and close above 8000-8050, my assessment will certainly be proved wrong.

Euro's next move is lower

Author:-Mr. Ritesh Victor

Posted Date:-12-Apr-2016

Euro has been moving in a tight range between 1.1332 and 1.1464 for the last eight trading sessions - an amplitude (high low variance) of just 132 pips – quite unusual for such a currency.

 

Let’s analyze the charts for some clues to its direction. The single currency surged continuously in Mar16 – from 1.08-1.10 to the current consolidation around 1.14. Notice the long upper shadows on the daily candlestick chart (day’s close ending quite a distance below the intra-day high) – a pointer towards losing momentum. There are visible negative divergences on the indicators (note the white dashed lines) – another indication suggesting a euro fall. Since Jan15, the region around 1.14 – 1.15 has consistently acted as a stiff resistance. It was breached only once in Aug15 (when euro touched a high of 1.1711) – and reversed in just 2 days towards 1.11 - 1.12.

 

Conclusion: my sense is that the resistance around 1.14 – 1.15 will hold and euro will probably decline towards 1.11-1.12 (at the least).

 

What to do?

Euro exporters should sell their EURUSD positions for 2-3 months maturity – USDINR can be done later.

Euro importers can hold now for a hedge target around 1.11-1.12.

 

Any break beyond 1.15-1.16 will rescind our assessment and will indicate that something else is conspiring.

Euro's next move is lower

Author:-Mr. Ritesh Victor

Posted Date:-12-Apr-2016

Euro has been moving in a tight range between 1.1332 and 1.1464 for the last eight trading sessions - an amplitude (high low variance) of just 132 pips – quite unusual for such a currency.

 

Let’s analyze the charts for some clues to its direction. The single currency surged continuously in Mar16 – from 1.08-1.10 to the current consolidation around 1.14. Notice the long upper shadows on the daily candlestick chart (day’s close ending quite a distance below the intra-day high) – a pointer towards losing momentum. There are visible negative divergences on the indicators (note the white dashed lines) – another indication suggesting a euro fall. Since Jan15, the region around 1.14 – 1.15 has consistently acted as a stiff resistance. It was breached only once in Aug15 (when euro touched a high of 1.1711) – and reversed in just 2 days towards 1.11 - 1.12.

 

Conclusion: my sense is that the resistance around 1.14 – 1.15 will hold and euro will probably decline towards 1.11-1.12 (at the least).

 

What to do?

Euro exporters should sell their EURUSD positions for 2-3 months maturity – USDINR can be done later.

Euro importers can hold now for a hedge target around 1.11-1.12.

 

Any break beyond 1.15-1.16 will rescind our assessment and will indicate that something else is conspiring.

Extracts from FOMC meeting minutes

Author:-Mr. Prateek Bansal

Posted Date:-07-Apr-2016

Extracts from FOMC meeting minutes:-

 

  • Federal Reserve officials signalled an interest-rate increase in April is unlikely, minutes of their March policy meeting showed, confirming markets’ growing conviction that the central bank will move cautiously until the global economy picks up steam.
  • Fed officials expected those headwinds to subside only slowly and didn’t want to appear to be in a rush to push U.S. interest rates higher.
  • The minutes indicated that some officials said they might want to raise rates as soon as April “if the incoming economic data remained consistent with their expectations for moderate growth in output, further strengthening of the labour market, and inflation rising to 2% over the medium term.”
  • The WSJ Dollar Index, which measures the greenback against a basket of 16 currencies, was down nearly 0.3% to 86.48, its lowest level in almost 10 months.
  • Officials at the March meeting were preoccupied with risks that economic output and inflation would undershoot their estimates. 
  • Eight of seventeen officials said risks to the economy were tilted to the downside, while nine said risks were balanced and none saw much likelihood that economic output would overshoot their estimates.
  • Eur/Usd inched higher and trading above 1.1400 post minutes.
  • GBP/USD moved slightly lower following the release of less dovish than expected FOMC minutes, but remained overall little changed above 1.4100 after recovering sharp losses incurred during the European session.
  • Rupee gained on board base Dollar weakening . 

GOLD - Start of bull run?

Author:-Mr. Nitesh Sharma

Posted Date:-07-Apr-2016

Yesterday’s US march FOMC minutes highlighted cautious approach from the FED. The Fed is increasingly sensitive to ongoing risks from financial and international developments and seems willing to tolerate a modest overshoot of its inflation objective, as policy is better positioned to respond to upside rather than downside risks. As such, i expect the fed funds rate will be held steady in the near term with further tightening likely to be delayed until later this year. In my sense this can give good boost to the yellow metal in coming quarters  which has lost the shine last year by 45% last year.

 

As per our  trail mail we have been long Gold since  1080 levels and met our 1210-1235 target in Jan itself , however we expected these levels to hold initially which was a long term resistance seen from  a downward sloping trend line. It has been broken last month which confirms that the long term bearish outlook for the yellow metal has come to an end and may be it can be  start of a bull market for regaining 1400-1500 mark by year end.

 

 

What’s on Chart?

 

As seen on the below chart a possible “inverted head and shoulder” formation is created and if it was true then the neckline is seen at 1300-1325 levels. Hence from here a move to 1285-1335 looks very likely in coming weeks and I would prefer to buy here with a stop at 1195 levels for an initial target of 1300 and eventually 1480 by the year end. Break of 1300-1325 levels will bring the focus to 1480-1550 levels in the medium term. In the medium term strong resistance is seen at 1484 which is 50% Fibonacci retracement of the gold correction from 1920-1048.In the short term  break of 1245 will see a buying good buying interest for 1285 levels. Immediate support is seen at 1220 levels. Good opportunity for genuine buyers to buy physical gold and start accumulating on dips .

 

Does rupee follow monthly seasonality?

Author:-Mr. Ritesh Victor

Posted Date:-02-Apr-2016

Rupee closed the financial year (2015-16) at 66.25 – 6% weaker than the previous financial year close (62.495 of 31 Mar’16). The trajectory has been for a weakening rupee with bouts of rupee gains as well. An obvious question that arises is “Are there specific months during which rupee gains or weakens?” - monthly seasonality in rupee. Let’s find out.

 

Monthly change is computed as Rupee’s closing price – Rupee’s opening price as a percentage of Rupee’s opening price. Have a look at the table below.

 

Colour Codes for monthly changes:

Dark Green         Rupee gains more than or equal to 4%

Green                   Rupee gains more than or equal to 2% but less than 3.9999%

Light Green        Rupee gains less than 1.9999%

 

Dark Red              Rupee losses of more than or equal to 4%

Red                        Rupee losses of more than or equal to 2% but less than 3.9999%

Light Red             Rupee losses of less than 1.9999%

 

Conclusion: On an average basis, Rupee usually remains weak during April to August period (with pronounced weakness in May and August). November is another rupee weak month. Rupee typically gains in January, March and December.

 

Should we watch out for Rupee weakness in April/May? We should.

USD/INR-Short term reversal

Author:-Mr. Nitesh Sharma

Posted Date:-22-Mar-2016

I had anticipated March being a tight liquidity month on account of advance tax payments , it was a good opportunity for RBI to intervene in the FX market by buying USD and improve the liquidity and not let the money market rates to shot up .Unfortunately RBI intervention was not very strong. Probably I think RBI chose to be on the sidelines because of  all the Asian currencies appreciated to the extent of 1-2% post FOMC meet where Yellen sounded very dovish and hence  USD weakness across the board.DXY was down from 98.60 to 94.63 in two weeks. Chinese  Yuan had  appreciated by roughly 2% since Jan from 6.6 to 6.4580 which a good surprise  but technically I do not foresee USD/CNY to go below 6.45.Until 6.45 is not broken my target for the year will continue to be 6.8.I initially I expected rupee to hold 67.-67.20 levels but it was a quick move to 66.4150 before a reversal now.

 

Whats now on charts?

 

The shout is louder now for rupee move to 65 and even 64  similarly it was for 70 when it was for 68.70 levels, I always choose to go against the herd mentality and follow my own conviction. For me until and unless I see a  decisive break of long term trend line in rupee till then I will continue rupee to weaken against USD.In the hourly chart I see a reversal in rupee for a test of 66.85 first and  then 67.Currently at 66.5850, yesterday’s 66.4150 move indicates that temporary bottom has been formed and direction is towards 66.85 and 67.A break of 67 will open door for a move for 67.35-67.40 region in next couple of weeks.Until and unless 67.40-67.50 level is not broken on the upside we cannot say a trend reversal in the pair. Importers are advised to stay hedged now for a month atleast at the current levels and stop bottom fishing while exporters should wait for better levels to sell.Only on downside  break below 66.40 will force me to revisit my near term view on the pair.

Crude Outlook: Way to 6th weekly gain

Author:-Mr. Nitesh Sharma

Posted Date:-22-Mar-2016

Crude oil prices set for its fifth straight weekly gain, after the Fed indicated fewer than projected rate hike increase and the dollar’s drop. The Fed said it would raise its interest rates twice this year, instead of prior forecasts of four times, enhancing demand on risky assets. The monetary easing from key central banks also increased investors’ risk appetite, where U.S. and Asian shares turned to positive territories for the first time this year. Key support came from the fall in the U.S. dollar to a five-month low of 94.60, as it encouraged buying to dollar-denominated commodities. Meanwhile, there are hopes that OPEC and non-OPEC producers could come up with a deal when they meet on April 17.We had captured end to end move in crude from 35 to 26 to 41 levels now.

 

What’s on the chart?

 

In our last report we had expected some correction in WTI towards 34.50-35 mark before resuming the rally for 45 levels. The correction was seen till 35.95 levels and currently it trades at 41.35 as I write. In the very short term I stand neutral .The range for the medium term is 35-47 levels with zoom in focus at 38.40-45 with biased for more upside in the coming weeks towards 45 and even 47 in couple of months if April 17th meeting between the OPEC and non-OPEC producers are constructive .Immediate resistance lies at 42.06( 200 DMA) followed by 44.20 ( 50% Fibonacci retracement for a fall in WTI from 62.60 to 26.06).On the downside immediate support is seen at 41 and any break of  41 will target our major support zone of 38.40 but not beyond that.

Rupee's moves making headlines - RETURNS

Author:-Mr. Ritesh Victor

Posted Date:-18-Mar-2016

Had written a couple of weeks back that 66.80 – 67.00 region will hold as dollar support (check my trailing mail). Have been proved wrong – accepting defeat with humility (Love when I loose – lessons to learn).

Had accepted defeat when rupee weakened to 68.79  last month (was not expecting a break beyond 68.30-50 region). At that time, was regularly telling all and sundry that markets are over running and that rupee weakness will not continue. Post Union budget on 29Feb, rupee exploded (surging 2.4% in just 5 trading days) – my smiles returned J

 

I feel a similar situation is arising now. Rupee gains have over run. No doubt, it is broad based dollar weakness that is contributing. Nevertheless, 3.3% gain within a month is substantial (to say the least).

 

What does the chart suggest?

A new down gap has been formed (quite a big one) – green parallel lines (67.21 – 66.95) in addition to the two down gaps mentioned in my previous report. One of the gaps (67.45-67.52) filled up 3 days later. The gaps yet to be filled are the green and pink parallel lines (67.76-67.85). My sense is a rupee weakening move towards these gap regions. Momentum indicators have turned oversold. Had indicated earlier about the long term dollar support trendlines (red and blue lines) – that region is around 66.00 – 66.50.

 

What to do for exporters and importers?

Importers: continue to hedge for 2 weeks – 1 month maturity {can hedge for 2 months too if budgeting levels permit (am sure it will, now)}. Should do vanilla calls for 2-3 months, along with forwards.

Exporters: do only at-the-money vanilla puts. Please refrain from forwards (forward premiums are attractive but spot is quite low).

Rupee's moves making headlines

Author:-Mr. Ritesh Victor

Posted Date:-05-Mar-2016

Rupee has been in the news for all the wrong (or is it right?) reasons. Initially, it was for the relentless weakness from 66.12 to 68.79 (a whopping 4% in 2 months) since the beginning of new year, and now from 68.79 to 67.08 (another whopping 2.5% in the reverse direction) in just 6 trading sessions. Has the Indian fundamentals (or even Global) changed fortunes so dramatically in the last 2-2.5 months to warrant such volatility (or are we trying to make sense in an insane market?)?

 

Let’s try to make some sense. The recent rupee’s surge has made two down gaps in the daily chart – notice the pink parallel lines (67.76-67.85) as well as the yellow parallel lines (67.45-67.52). Price gaps are usually filled and it tends to suggest a probable move to these levels. The 89-day Simple Moving Average (a good indicator of short term dollar support) comes at 66.95. Long term dollar support trendlines – red line since 2011 and blue line since 2012 (notice these lines in the daily and weekly charts) comes at 66.65 and 66.00 respectively. Momentum indicators are gradually inching towards dollar oversold areas.

 

Conclusion: 66.80-67.00 is going to be a strong dollar support region. Break of 66.80-67.00 (low probability scenario) will target 66.00 – 66.65 (long term dollar support area). Importers should hedge short term (2 weeks – 1 month) liabilities. Exporters (who have reaped benefits from the previous wave of rupee weakness) can hold on for a while – target 67.50-75 for dollar selling. A mix of forwards and options will be prudent.

USD/INR Outlook

Author:-Mr. Nitesh Sharma

Posted Date:-02-Mar-2016

Very precisely it was a good end to end move for rupee as we anticipated in the trail mail where our selling interest was between 68.75-68.85 levels .Rupee made a low of 68.79 on 26th and broke past the crucial support of 68.20-68.25 levels yesterday where we advised can  a quick move to 67.50 on a break of 68.20 levels and should be a good opportunity to sell  to make a quick buck. Yesterday the pair held 68.20-68.22 levels for a while but once it broke it swiftly move to close at day low at 67.85 for a one sided move to 67.60 levels as I write as expected. The major trigger has been the fall in the bond yields with government keen to keep the fiscal deficit at 3.5% for financial year 2017 which also led the stock market to rally on anticipation of a rate cut from RBI in April.

 

What’s now on charts

 

I expect the 67.50-67.60 levels as a first buying levels and expect importers to come in to hedge their week to 10 days  payment and on the other side good opportunity for exporters to lock in some profit .As seen in the chart 67.50-67.55 levels hold a crucial support area and is also 23.6% Fibonacci retracement which  lies at 67.52.From here a small correction to 68-68.25 is likely but should be a good opportunity to sell for a move to 67.20 before a big reversal back to 68.25 and above towards our ultimate target of closer to 70 by year end. To make it simpler, I don’t expect rupee to come down below 67.20 and should be a good opportunity for RBI to aggressively Buy $ around 67.20 levels to scale up their reserves from $ 350 bn now.67.20 is also the medium term trend line support and hence importers should aggressively start buying around 67.15-67.25 levels. Near term range play will be 67.50-68 with extension limited to 67.15-68.25 which will be play end to end for a month or two now.


Crude Outlook: WTI Reversal from here for $40+

Author:-Mr. Nitesh Sharma

Posted Date:-22-Feb-2016

Technical Outlook:

 

Of late  since last couple of months Oil has been the major deciding factor in driving all the markets, be it FX, Stock, Bonds or precious metal. Market has been switching sides from Risk off to Risk on and vice versa hence the importance of tracking this underlying asset becomes so important. In my last mail I did mention a positive  divergence seen on the weekly chart for a reversal ahead in Oil but we would rather wait for a confirmation before taking any call. Since October  it was trading on a downward sloping channel  as seen in the chart below which got broken for the first time today around 32 .Since it has broken the downward sloping trendline  hence it’s a trend reversal for me for a move towards $40-$45 levels in coming few weeks before consolidating between $35-$45 levels. Market will find stiff resistance to break $45 which is a 23.6% Fibonacci retracement for a fall in WTI from 107.54 to 26 levels. On the downside it will find support at 31.5 and range for the week looks to be 31.5-35 levels. Keep buying on dips!!

Has Crude prices taken a turn?

Author:-Mr. Ritesh Victor

Posted Date:-18-Feb-2016

Nymex made a classic (picture perfect) double bottom formation, having found support at 26.05, against the previous low was 26.19 (20 Jan’16) – notice the two yellow saucers on the candle chart. The current price is threatening to break above the upper trend line of the downward moving trend channel. A comprehensive break of 31.5 will pave the way for 34.82 – neckline of the double bottom (the red horizontal line). If the neckline breaks, the possible target is 43.59 {34.82 + (34.82 – 26.05)}. There are visible divergences in MACD as well as in RSI and Slow Stochastics – all seem to suggest a decent recovery in crude prices.

 

Any break below the previous lows of 26.05-26.19 will revoke our bullish judgement.

 

Iran’s oil minister quoted that they support a decision by OPEC and Non OPEC oil producers to keep a “ceiling” on oil production. Probably, a production cut is all that is needed for a turn.

USD/INR Outlook

Author:-Mr. Nitesh Sharma

Posted Date:-17-Feb-2016

The relevance of saying medium term is not there anymore. While sending my mail on 31st Dec 2015 at a spot of 66.20 ( scroll down to have a look at it) my upper range for rupee for 2016 was set at 70.40 which I anticipated will be seen around October/November on account of dollar strength and outflow of USD 35 bn outflow during that time. We are already trading above the midpoint of  65.60-70.40 range today which was set for 2016. While everyone knows the reasons so  far but the question is how far it can go and at what pace. During the same mail we have also shared the similarity of rupee weakness this year vis-vis 2015 with expected annualized depreciation of 6.6% this year .My  calculation says rupee has already depreciated by 28% in  annualized term  in just 48 days and 3.8% in absolute terms from 66.13 to 68.65.My more concern is I expect another 4% Yuan devaluation from the current levels this year, so where will rupee go ?

 

What’s on Charts?

 

 I met my target of 68.50-68.85 range which I expected  and consistently was sharing with my clients.68.85 has been the 2013 low for rupee and all efforts will be there to protect this level and hence selling interest will be there around 68.75-68.85 levels from the exporters and RBI.On the downside rupee appreciation can be seen only on a break of 68.20-68.25 levels, so a floor is set at 68.20-68.25 levels now and upside is open for 69 /69.20 levels on a successful breach of 68.85. My near term range for rupee is set at 68.25-68.85 and wider range set at 68.20-69.20 with any overshoot limited to 69.20 in the near term. On the downside break of 68 will be seen as a short term reversal and will be a very good opportunity to lock in a profitable sell deal for a move towards 67.50 and possibly to 67.20 also. Momentum indicators stands neutral .Keep an eye to 68.20 and 68.85.i still retain my 70.40 target for Rupee this year.

Crude Outlook

Author:-Mr. Nitesh Sharma

Posted Date:-10-Feb-2016

The sharp rebound in oil prices from the middle of January proved to be short-lived . Oil prices are now down for the fifth day and second consecutive week.WTI crude oil costs less than $29  again, while Brent costs less than $31, at the time of this writing. Oil traders have been discouraged by the lack of any breakthrough in talks between some OPEC and non-OPEC producers couple of days back. As a result, the probability of coordinated output cuts and tolerance of bullish speculators have both decreased. The latest positioning data from the ICE - which shows bullish bets on Brent rose by a sharp 31,309 contracts in the week to 2nd February, perhaps in anticipation of a deal between Saudi and Russia - suggests there is a big risk for position squaring from these group of market participants, especially if it becomes obvious that there won't be any production cuts which has already reflective in WTI falling from $33 to 27.75. This could exert further downward pressure on prices in the short-term. And judging by the behavior of oil prices this week, this is exactly how it is looking like at the moment.

 

 

But most of the bad news is already in the price and witnessing further big nominal price drops could soon become a thing of the past for oil, probably not before one final leg lower towards $ 23-25 only on a break of $27.5. I would imagine a growing number of people are beginning to feel more confident that US oil production is going to fall noticeably soon, perhaps around the middle of the year. This is suggested for example by the consistent falls in the oil rig counts which fell by a further 31 rigs last week. Not only was this the seventh consecutive weekly decline, it was the most pronounced since April 2015. At just 467 active rigs, drilling activity is now at its lowest level since March 2010 having dropped by about 70% since the start of 2015. Likewise, the Drilling Productivity Report from the US Energy Information Administration (EIA), which was released on Monday, points to a sharp decline in shale oil production in March.

 

 

What’s on the chart?

 

If we have a look at the below chart we can see market has been moving in the downward slopping channel  formation. Last week we had send a sell recommendation around $33 levels considering a major hurdle around the upper channel for a target of $28 which we met yesterday  .The upper channel now stands at 32.20 levels. So until and until there is a decisive break of $32.20-32.50  it cannot be said as reversal and any break of $32-$33 in WTI  will revise our target in crude for $45 in the medium term but subject to breaking that level. That being said, the trend is still clearly bearish till the channel holds and so far there is little technical evidence to suggest a bottom has been established except that on the weekly chart we see some negative divergence in RSI hence we shall in cautious on any sign of reversal and a major support lies at $27.5.A break of $27.5 will swiftly make a move towards $25.A pull back from $27.5 will confirm a “double bottom formation” is there confirming a reversal shown as a horizontal line in the chart. Immediate resistance lies at 29.50-29.75 levels .Watch out for $32.20-32.50 levels on the upside and $27.5 on the downside for future direction in the crude.

Ruble :more weakness ahead this year

Author:-Mr. Nitesh Sharma

Posted Date:-10-Feb-2016

The Russian ruble dropped to an all-time low against the US dollar  to 85.95 towards the end of Jan 2016  but corrected to 74-75 levels on good rebound on  the crude prices from 27.50 to 33+ levels . The Russian ruble exhibits a high positive correlation with crude prices as Russia exports a large quantity of crude oil and is dependent on export revenues connected to crude prices. Graph below depicts the correlation of Brent and Ruble which stands at 85% correlation today. Surprisingly the correlation has been quite high recently. During 2015 the average correlation used to be 50% or lower but since last  August the correlation has been closer to 70-80% as seen in the below chart and of late for last 2 months at 85%.

Gold Outlook-1040 target met

Author:-Mr. Nitesh Sharma

Posted Date:-08-Feb-2016

We met our 1040 target in gold last week and booked our profit today at 1066 levels (27720, in Rupee terms), we were long at 1080 (25550)  .Gold hovered near the highest level in three months on Friday at 1077 levels, as the strong selloff in the U.S. dollar helped demand on the metal as an alternative investment. It’s risky to hold long at these levels and short term correction is possible from 1077-1085 levels.

 

What’s on charts?

 

While I continue to stay bullish in the near term in gold for a target of 1210-1235 levels before a bigger reversal to 1050 levels again  however a correction is due now from the current levels.Move from 1075-1080 levels was quite fast and on the daily chart the momentum indicators are over bought suggesting this rally can come to an end anytime between 1175-1185 levels for a correction towards 1130-1140 levels before setting up pace towards 1200 levels.We had exited all long position and will continue to trade end to end between 1135-1220 levels for next few months.

USD/INR Outlook-Temporary top formed, direction to 67.10-67.15 levels

Author:-Mr. Nitesh Sharma

Posted Date:-25-Jan-2016

It looks like everything changed after the ECB meet last week , markets from risk aversion to risk on mode . I have no doubt that this reversal in fortune for equities has been spurred on by the prospect of more ECB stimulus in March, as strongly hinted at by President Mario Draghi on Thursday, as well as a rebound in commodity prices which is giving a big boost to oil leading to sharp recovery to 32.58. This long overdue injection of positivity into the markets has prompted a move away from the safe haven plays that has been so prevalent this year and appetite for risk increase. Gold is under a little bit of pressure , while the yen and Swiss franc are shedding some of their recent gains. On the other side Rupee  found support at 68.17 levels to giving some relief for the importers. Is it a trend reversal or temporary change in mood due to ECB QE news?

 

 

What's now on chart?

 

As seen on the weekly chart , a "gravestone doji" is formed hinting possibly a temporary top is formed at 68.17 levels. The range play has shifted to 67.10-67.80 levels ahead of the bigger focus range of 66.85-68.20 levels now for trading range for the coming weeks. While holding on to our target of 68.50-68.85 in the medium term, I feel in the very near term  the selling pressure will intensify   around 67.70-67.75 levels now from current levels of 67.5875 as i write  for a move to 67.05-67.15 levels. While on one side exporters should not chase for gains beyond 67.75 in the immediate near term while  on the other side importers can defer their hedging towards 67.15 levels .


Dollar Index (DXY)-Looking for break out-Will ECB meet today be the trigger?

Author:-Mr. Nitesh Sharma

Posted Date:-21-Jan-2016

In continuation to our last report DXY run from 93.95 halted at 100.50 to break the channel on the lower side to pull back to 97.18 levels. Since then market has been trading between 97.50 and 99.50.In between all the market turmoil from Equity turmoil, china growth to crude fall , DXY was steady and especially EURO which has spent the majority of the last six weeks consolidating in a 200-pip range from 1.08 to 1.10, which is a surprise.

 

 

At the same time, central bankers from both the US and Europe have taken a more passive approach than many traders were anticipating heading into the year. The ECB will have the first opportunity to make some waves with its meeting today. No action is expected from the ECB , but the tone and comments during ECB President Mario Draghi's subsequent press conference could tip the ECB's hand and provide a clue about to expect moving forward. Next week, the Fed will take its stab at calming the markets with a likely-unchanged monetary policy meeting of its own.

 

 

A less-dovish-than-anticipated ECB statement and press conference could take EUR/USD through resistance at 1.10, potentially opening the door for a more meaningful rally toward the 1.1100 handle. On the other hand, a very dovish statement (or even easing action) from the ECB could drive rates through support at 1.0800, potentially exposing 1.07 or potentially previous support in the 1.0500s next. For traders it’s a very good and important event as this event can possibly provide a clue for the EURO movement in the near future and will surely have some impact on USD/INR pair.

 

Whats now on charts?

 

If we have a look at the daily DXY chart , a break out can happen  either way towards 100.50 or on the downside to 97-97.40 levels. The key events that can trigger the move can be today’s ECB meet or FOMC meet scheduled on 27th which has to be seen. On the break out of either side it gives immense opportunity for the traders to ride the wave for our above said objective. Similarly for the currency like EURO which has a 57% weight on the basket will move in tandem with DXY index hence for Euro exporters and importers DXY is quite important. In EURO/INR terms the trading range for coming weeks will be seen at 71.75-75.70.Upper range of 74.70-75.70 will be subject to DXY break on the downside towards 97 which means Euro at 1.1080-1.11 levels.


USD/INR Outlook

Author:-Mr. Nitesh Sharma

Posted Date:-13-Jan-2016

Wow what a start of year 2016!! While sending my previous report on 31st December ( scroll down below) I did mention the  impact of Global growth led by downfall in commodity prices and China , the major two reason behind the rupee weakness in this year but little i knew that it will start from 1st trading day on 6th Jan with disappointing PMI from china which led to Shanghai crashing by 16% since then .I do believe this is just the beginning and another 15% correction from this levels is very likely targeting 2400 which can lead to one of the worst year  in financial markets since 2008.Nifty will be relatively better off with another 4-5% correction from the current levels.I feel Yuan can devalue further by 3-4% from the current levels leading to continued rupee weakness towards our medium to long term target of 69-70 levels this year.

 

On USD/INR, while we were bit optimistic on rupee performance for this quarter but i need to revisit my view and i see remote possibility of rupee below 66.35 now with the shift in the  base and shift the near term range to 66.35-67.35 for a month from here.66.35 will be subject to breaking of 66.65 on a best case scenario and any closure of rupee above 66.92 will drive it to  67.35 in few trading days hence importers are advised to be watchful for any closure above 66.92  and stay hedged on its breaking. Immediate support is seen at 66.72 and resistance at 67.05.

 

What's on chart?

 

A short term channel formation indicates support now at 66.72-66.75 levels and good buying interest at that level, a break of 66.95 and a closure above 66.92 will be required to make a move towards 67.25-67.35 levels  thereby shifting the trading range from 66.10-66.90 to 66.85-67.50  for next couple of month. Courtesy to RBI any failure to close above 66.92 in next 2-3 working days can give some breathing space for rupee to trade between 66.65-66.95 in the very short term but it will be considered a consolidation for a move towards further weakness. Keep buying on dips!!

 

Gold is looking bullish for near term

Author:-Mr. Prateek Bansal

Posted Date:-12-Jan-2016

Gold is looking bullish as risk aversion seems to be prevails in days to come over china's economic growth concern.

 

Trading in a downward trend channel gold is towards its lower band and after rising from there it has already took a resistance at $1110 and reverses from there. it can take a support at 1185 and then it can move towards $1150 which is the upper band of the channel. MACD and RSI clearly showing divergence in the daily chart while MACD is also entering in the positive range as it is currently standing at 4.88.

 

Buy gold at $1085 for the target of $1147 with a stop loss of $1070. 

Is Nifty (India) the bright spot?

Author:-Mr. Ritesh Victor

Posted Date:-07-Jan-2016

 Is Nifty (India) the bright spot?

 

Wow!!! What a day!!! Certainly gave a huge adrenaline rush. 7 Jan’16 will be a date to remember for a long time.

 

Shanghai collapsed 7%, trading stopped – second such occurrence in a span of just 4 days. Asian indices down 2-3%. Dow futures plunge 2% (as I write this). Crude declined 2% (at one point it was down almost 6%).

 

In this pandemonium, Indian indices collapsed as well, declined in excess of 2%.

 

Take a look at the chart below: a rebased chart (base 100) - indicating comparative performance of various global equity indices since 2 Nov’15.

 

Bovespa (IBOV - Brazil) has performed the worst – light blue dashed line – lost 13%.

 

Next set of worse performers are the European indices – lower by 10-11% – DAX (Germany) – dark blue dotted line and CAC (France) – grey dotted line.

 

US indices are negative too – Dow Jones (red dashed line) and S&P500 (orange dashed line) are lower by more than 5% - this will probably worsen once US opens tonight (Dow futures -2%).

 

Asian indices, except Hang Seng, have performed relatively better. Shanghai collapsed this week, but considering 1 Nov’15, it has been better off. One can say, Shanghai and Nikkei (yellow and green solid lines), first outperformed in Nov-Dec15, only to collapse in the new year.

 

Nifty is at 94 (white solid line) – in this mayhem, has it really lost value?

 


USD/INR Outlook- 2016

Author:-Mr. Nitesh Sharma

Posted Date:-31-Dec-2015

At this juncture of transition  from 2015 to 2016  its time to review the year gone by and find out what is in store in 2016.It has been quite a fair play for rupee in 2015 with  depreciation of just 4.7% {63.1850 to 66.20( expected closing)} against the average 12 month premium of 6.7%.Even with  4.7% depreciation exporters stood to benefit on an average 2% vis-vis forward premium.

 

We had capped  the last quarter  Sep-Dec range or yearend  Rupee range   at 67.25 against which the market is expected to close the year around 66.15-66.25 levels today within our last quarter range of 64.60-67.25. If we scroll down to our view , we will see we have been consistently forecasted for  rupee depreciation since 61-63 levels for objective of around 66 levels by year end and as we move on to next year we continue to with same view.

 

 

What’s in 2016?

 

Year 2016 will be another similar year like 2015.Rupee will continue to depreciate maximum  to the extent of 6.6% from the current levels of 66 slightly more than seen in 2015.The range for 2016 will be 65.60-70.40. Following factors will drive rupee weakness in coming Year in 2016:

 

a)Global growth: With commodity prices crashing , Crude at its near 6 year low , with no hope for any reversal in the immediate term will be a cause of concern for any global economy. On the supply side, OPEC may not cut their production in order to retain their market share  and on the other hand Chinese lower demand will put additional pressure on the prices. While India may  cheer on CAD( current account deficit) reduction  from 2.1% to 1.6% , which may fall further but the sentiments will be quite negative within the business hub driving rupee lower. Exports will come under severe pressure hence more reason for RBI to keep rupee at elevated level.

b)China Impact : The major impact of rupee weakness will come from PBOC policy and Yuan depreciation. I believe the growth of 6.9% will be stretched and actual growth will be around 4-5% in 2016  pushing more pressure in Yuan and thereby driving USD/INR pair lower along with other emerging currencies.

c) DXY strength( dollar strength): I believe US will move into faster growth trajectory into next year and divergence monetary policy will drive the FX market which will ultimately  put all cross currencies under pressure as we move into second quarter of 2016.We target EURO and Pound at 1.05 and 1.44 respectively with DXY target of 102.5 levels in medium to long term.96.50 will be a crucial levels to watch out for .

d) USD 35 bn outflow of FCNR(B)- Between Sep-Nov 2016 we will have roughly USD 35 bn of FCNR(B) repayments which was raised in 2013. Challenge will be for  the RBI to manage this repayment . It has to be seen how RBI will handle this outflow or it can be restructured.

e) Bric currency depreciation : Rupee has been one of the most stable currencies in 2015.Rubble depreciated by  24.81%, ZAR by 34.65%, Brazilian Real by 47.38% and Yuan by 5.79% against Rupee weakening just by 4.67% vis-vis USD.Will we see rupee doing some catch up during 2016 or will be keep outperforming other currencies?

 

Quarter 1- Jan-March 2016- Range 65.60-67.50

 

Immediate coming quarter we will see rupee trading in a thin range between 65.60-67.50 levels with no que of break out on either side.

 

  1. Stability will come from DXY marginal correction  from 98 to  96.50 levels( Euro to 1.11 and GBP to 1.51) helping rupee to stabilize around 66 levels in the month of Jan.
  2.  Bunch of flows will be expected after December low liquidity month  driving  NIFTY from 7750 levels to 8200 levels in coming months before stabilizing between 7800-8100 during this time.
  3.  As seen in  the past RBI will take this opportunity to absorb excess $ flow in the system and at any given opportunity would like to mop up their reserves around our Buy zone of 65.75-66.10 levels.
  4. With  Feb knocking , focus will shift to Budgets and will keep investors and traders on the sidelines for taking fresh direction from budget  and things in store for the FII.Hence more sideways trading between now and march.

 

 

What’s on Chart?

 

Simple thumb rule is to believe the medium term trend line while falls now at 65.60 as seen in the chart as I keep sharing. Till the time the trend line holds i will continue to believe rupee weakness will be in intact  hence its more important  for importers to be on toes this year . In the near term good import hedging will be seen between 65.85-66.20 levels and exporter interest between 66.75-67.20 levels. Immediate good support is seen at 66.10 a break of which may push rupee lower towards our lower range of 65.70-65.85 levels. On the upside immediate sell zone is at 66.48-66.55 levels .


Gold Outlook

Author:-Mr. Nitesh Sharma

Posted Date:-28-Dec-2015

 DXY made  a big recovery from 72.67 in 2011 to 100.51 in 2015  and during the same period  Gold made a big fall from 1920 to 1050 .Today the inverse correlation  between the two stands at 85%.Wisdom says Gold is considered as a safe haven asset and rise and fall will be subject to market on risk on and risk off globally and yes as a hedge aginst inflation.While inflation is subdued globally with commodities prices at historically low level the trend for next 1 year will be bearish. Today the scenario says when Interest rates are rising or expected to  rise US will strengthen which  will eventually  drive the Gold prices. Many analysts project that the Federal Reserve will have to tap the brakes on its normalization schedule in response to weak global growth specially with China struggling  for growth. If fears about low inflation or stalling economic growth which may  allow the Fed to raise interest rates once or twice in 2016, gold could be one of the biggest beneficiaries.

 

On a longer-term basis, gold's path will likely still depend on Federal Reserve policy: if the US central bank is able to raise interest rates in 2016 as aggressively as its most recent projections suggest (a total of four hikes next year, or one every other meeting), the opportunity cost of owning gold and likely strength in the dollar could easily push gold  to  950 something which we have .

 

Whats on Charts?

 

While we have been shouting  for our 950 target in Gold  for  long time ( our medium term/Long termview) view which even now  we may have to wait for atleast 6-7 months to see that level. In the short-term, strong resistance still looms in the 1080-1090 corridor, where previous support levels have now turned into resistance . Therefore, we wouldn't be surprised if the metal simply consolidates in the 1050-1090 zone through the low liquidity holiday period. However if we see any break of 1080-1090 levels which is more likely the focus will shift to 1140-1150 levels (DXY at 96.50) from where we will expect selling to resume. Hence in the near term I will expect Gold to recover to 1140-1150 levels from here. On the lower side any break of 1050 the focus will shift to sub 1000 levels. Check out for 1050 and on the downside and 1090 on the upside.


EURO short term recovery expected

Author:-Mr. Nitesh Sharma

Posted Date:-28-Dec-2015

Very precisely as shared in trail mail after the FOMC meet we saw EURO tested 1.08 handle  and bounced back from there t trade at 1.0976 today. We had also anticipated some correction in DXY post FOMC which is actually on the correction mode. As we run into another holiday week the dollar will be expected to be mildly softer.

 

Whats now on charts?

 

From here on we continue to expect USD weakness in the very near term( DXY first at 97.44 and with that break at 96.50).Euro is expected for a sharp recovery from here to atleast 1.1080 levels extending beyond our earlier said range of 1.0465-1.1050.Euro is possible expected to rise further towards 1.11-1.1130 mark on the break of 1.1080.On the downside support is seen at 1.0910-1.0925 levels. Hence selling is not recommended at all at these levels. EUR/INR  precisely retraced from 71.74 within our set range of 74.20-71.50 in the near term as shared in trailed mail. In the very short term the good selling interest will arise at 73.10-73.20 levels hence exporters should wait for that levels to convert their receivable or book forward around that levels. 

GBP -Recovery from here

Author:-Mr. Nitesh Sharma

Posted Date:-28-Dec-2015

In our previous report on 1st December we had targeted 1.5250 in GBP/USD before sliding  which we almost met on 11th December to see a high of 1.5238 and from there on it corrected 400 pips to make a low of 1.4802 .

The UK economy grew less strongly than previously estimated in both the second and third quarters, providing the Bank of England with more reason to remain cautious as it ponders when to raise interest rates from all-time low.

 

 

Whats now on charts?

 

Technically a “Hammer formation” on the weekly chart gives me enough confidence that near term  downside is over in GBP/USD and from here we will first target 1.5020 (50% Fibonacci retracement of the fall from 1.5242 to 1.4804) and from there we will  1.51-1.5120 mark before sliding again. As seen in the chart the pair is trading fairly within the set downward sloping  channel  formation. Immediate support is seen at 1.4865.In the medium to long term we target the pair at 1.44 levels a good 800 pips fall from around 1.51-52 levels. Exporters need not hurry and may wait for the better levels. In GBP/INR we do not expect much recovery beyond 100.50 and exporters should target to sell around 100.25-100.50 levels for a target of 96-97 levels in next couple of months. End to end the broader range play will be 96-101 with zoom in focus at 97-100.50.


Possible outcome of the FOMC meeting

Author:-Mr. Nitesh Sharma

Posted Date:-16-Dec-2015

Federal Open Markets Committee (FOMC) is scheduled to meet today to set monetary policy. There are no guarantees apart from an extreme amount of volatility in the currency markets, so what are the potential outcomes?

 

Hawkish Raise

The market is predicting a raise in interest rates; in fact it is priced into the market somewhere between 70-90%. This will be the first rate hike since 2006 and the first rate change since December 2008. The Fed has been talking up a rate rise for a considerable time now so market’s expectation is understandable.

US have the data to support a rate rise, although inflation could be better. Unemployment is at its strongest level since May 2008 and there are low amounts of spare capacity in the economy. The statement after the decision is going to be keenly watched for signs of future rate hikes. A rate rise might be the likely outcome, but a particularly hawkish Fed that commits to a series of rate hikes throughout 2016 at a similar rate as in the past is less likely. Something which I have talked about in my previous report i.e. 25 bps rate hike with status quo for considerable time( Neutral Raise).There is the risk that aggressive rate hikes will push the US economy back into recession, and the Fed will be aware of this. If any rate hike is accompanied with a hawkish tone which will be Dollar strong and likely immediate  market reaction will be DXY above 99.20 , Euro at 1.0750,yen at 123.50 and GBP at 1.4950, USD/INR at 67.25.

Neutral Raise

In my opinion, this is the most likely outcome; the Fed raising interest rates, but subsequently remaining cautious about the state of the economy. There is a general feeling that the economic recovery is slightly more fragile that it looks on paper, especially given the state of oil prices (knocking on the door of an 11 year low) and the economic slowdown in China.

The Fed will say something about how they will monitor the data and make a meeting by meeting decision on interest rates. Essentially they will be non-committal about future hikes so they can have some room to swing dovish if needed. If this proves true, the US dollar will be a rollercoaster. It will spike initially, but disappointment will set in and the gains could easily turn to sharp losses, depending on how neutral the Fed goes. The hike is heavily priced in, so the prospect of few (or no) rate rises down the road will be a disappointment to the dollar bulls. Stops will be triggered and the volatility will be  extreme. DXY will trade between 96.50-99.50, Euro between 1.08-1.1050, GBP between 1.5250-1.49 .

Hawkish Hold

This is the second most likely outcome, but it will be a sharp disappointment to the market. Yellen had initially confirmed that December meeting will be  a “live” meeting which the market has taken as a clear signal that rates will rise. The hike is heavily priced in, so to not deliver will see panic selling and unwind of  long Dollar positions.

There is a slight chance this outcome will happen. The Fed have managed to disappoint the market back in June and September when it was possible they could have raised then. The Fed will try on some damage control and suggest that the next meeting is definitely a live one, but the damage will be done. The US dollar will tank initially and it will likely be brutal. The real question will be, is the Fed still credible? Will the market believe anything they say going forward? Markets will looks like DXY at 96.50, EUR at 1.11/1.12, GBP at 1.5250/1.5350 and Yen at 119.50 and USD/INR at 66.50/66.20

 

Neutral/Dovish Hold

This outcome is the least likely of the outlined scenarios. If the Fed decides they do not quite have the data to justify a rate rise, they best talk up one at the next meeting. Failing that their reputation will take an even bigger hit than the US Dollar. The implications will be far reaching, and economists will dig into the statement looking for justifications; perhaps the Fed sees a recession coming?

Federal Reserve is due to set monetary policy, with the first rate rise in 9 years expected by the market. Volatility will be extreme, but the dollar may not rally to very big extent, especially if the Fed is not as hawkish as the market would like. Best just to sit on the side-lines and stay out of market as much as possible.

 

EURO Outlook

Author:-Mr. Nitesh Sharma

Posted Date:-16-Dec-2015

Euro continue to trade within our set range of 1.0465-1.1050 as we anticipated on our mail sent on 17th Nov.In our last report  ahead of the ECB meet we had warned for a big reversal  in EURO  from 1.0465 which eventually reversed  from 1.0504 on 3rd December post ECM meet  to make a high of 1.1062 yesterday ahead of FOMC meet to trade now at 1.0934 currently. End to end it was a good range play between 1.0465-1.1050 levels. Similarly on the break of 71 levels it was a quick shift to 73+ levels which was very quick and was a bit surprising which was well supported by the USD/INR pair.We had exited all short ahead of the ECB meet.

 

Whats on chart?

 

Ahead of the crucial FOMC meet today it’s really difficult to share a precise view but if I keep aside the event risk and just go by the charts then it likely that we have seen a recent temporary top of 1.1062 yesterday and gradually the pair will be guided for a move to 1.08 levels post FOMC.Within the day today,  a correction from 1.0935 to 1.0960-1.0975 will be expected before sliding again .Similarly in the EURO/INR pair the upside will be limited now to 74.20 with downside open for 71.50 in the near term for 1-2 months range play. Good selling interest will be seen at 73.50 now ( currently trading at 73.20).It’s advisable not to build any position without a stop loss ahead of a big event. 

Nifty outlook

Author:-Mr. Nitesh Sharma

Posted Date:-09-Dec-2015

Nifty continued to play sideways as seen on the Weekly chart. I had been regularly saying that indices is at consolidation mode with biased towards downside until and unless we see decisive break of the channel( now at 8250-8300 levels).Till then be on the sell side. In the near term the range play was limited to 7750-7950 , however on the break of 7750 rooms are open for 7500-7550 levels which is a decent support. Momemtum indicators like RSI and Slow stocs is also supportive. On the break of 7500 the focus will shift to 7250-7300 levels which is the worst case scenario  before start of the long term bull run rally as previously shared on 24th August Mail.On the upside, selling will intensify above 7900 levels range in the near term , with upside capped at 7950 on the upside .

USDINR-Outlook

Author:-Mr. Nitesh Sharma

Posted Date:-08-Dec-2015

On my Sep 23rd mail ( refer trail mail) I had  anticipated the quarterly range of rupee at 64.60-67.25 (Sep-Dec quarter) and our medium term outlook for rupee at 68.50 by Jan-March 2016 quarter. While we are distant away from 68.50 as of now but we are quite close at 67.25 levels today. Will we get to see 67.20 by December and 68.50 by March? It was a good play for us to capture end to end between 64.60-66.90 levels so far however going ahead the range play has shifted from 65.60-69 levels for next 4-5 months. Market will turn rupee  bullish  only if we see the medium term trend line breaks , currently at 65.60 levels which we completely rule out based on the fundamental. Till then keep buying on dips!

 

Lot of uncertainty looms ahead this month  with respect to GST bill and FOMC meet scheduled on 16th December. While I personally expect a token rate hike of 25 bps in FOMC meet on 16th December with extended period of status quo .Hence I do not expect too much volatility on this news as market has already discounted the rate hike. Yes market will definitely react if Yellen fails to deliver what market is expecting and already discounted similar to what we saw after ECB meet last Thursday. Complete unwind of Euro short( DXY correction from 100.50 to below 97.60). While we were quite hopeful  on the GST bill but now with Sonia and Rahul’s Herald case it looks GST too can be stretched and can take a political angle and mind you if that happens 68.50  will be sooner than we anticipate.

 

Whats now on chart?

 

On the rupee chart  as shared multiple times we continue to see weakening rupee till the trend line hold (Refer weekly chart below) .Trend line which is holding since early 2012 saw 10 attempts to test the trend and bounce back. Currently the trend line has shifted to 65.60-65.75 levels against 64.70, 2 months back , so do not expect anything  below that. In the immediate near term the range play is limited to 66.60-67.20 levels. A break of 66.60 on the downside will give some relief to importer to shift the focus  back to 66-66.25 levels. At current market price I stand neutral between 66-67.20 with a higher probability to see 67.15 first ahead of 66 .Check out for 66.60 support in the very near term and resistance at 67.10-67.20 level. A break of 67.25 will see a one sided move for Rupee weakness towards 68 and would expect the RBI to protect the level of 67.25.At current situation when we sit in the middle range of 66-67.20 with big events knocking on the door  it’s advisable to shift to plain vanilla call/put options to hedge near term receivable /payable.

USDINR Technicals - Double top resistance at 66.90

Author:-Mr. Ritesh Victor

Posted Date:-03-Dec-2015

Rupee’s decline from the long term support region of 64.80/65.00 towards the current levels around 66.70/90 has been continuous, without any substantial counter trend. The current rupee weakening move stopped at 66.89 on 27Nov15 (courtesy RBI) – the exact level it stopped on the previous occasion (on 7Sept15). It is forming a double top around 66.80/90 – as such these levels will continue to act as a short term resistance. A long term trendline resistance (red line on the chart) comes around 66.65 (this trendline connects the all time low of 68.80 with the previous rupee low of 66.89). Momentum indicators look stretched and overbought dollar. There are visible divergences on Relative Strength Index, Slow Stochastics and Directional Indices – all these tend to indicate a dollar cool off (rupee recovery). There is a price gap around 65.83 – 65.90 on the daily charts.

 

My sense is tilted towards a possible rupee recovery – at least towards 66.00/20 region (an extension could fill the price gap around 65.80/90). Any move beyond 66.90/95 (rupee declining towards a new low) will rescind our assessment – this will indicate that dollar upside is not done as yet.

 

What’s for exporters and importers?

Exporters: rupee weakening has been in your favour – one should capitalize - partially sell dollars around 66.80 (using more of forwards and some vanilla dollar puts too).

 

Importers: can look for a rupee recovery towards 66.00/20 – should buy dollars at that range (do forwards and vanilla calls also) – keep a stop at 66.90/95 – break of this could lead to large rupee weakening – in this case, do more of vanilla calls than forwards.

 


EURO Outlook

Author:-Nitesh Sharma

Posted Date:-17-Nov-2015

Again it was precisely as we expected .Euro/USD made a high of 1.1072 on 30th October within our set range of 1.0465-1.1050 range to swiftly scale back to 1.0660 today as I write to target now on the lower end of the range of 1.0465 levels in coming weeks. Similarly in EURO INR the range played more accurately between 70-72.70 as discussed in trail mail.EUR/INR retraced after making a high of 72.49 on 2nd November to retrace toward 70.20 as I write. We had strongly recommended our euro exporters to stay hedged between 72.20-72.50 levels for coming month receivables.

 

What’s now on chart?

 

Quite similar to DXY, euro is trading between the downward sloping channel. From here on we continue to target 1.0465 in medium term with upside capped at 1.08.The range play will now be limited to 1.0465-1.08.On a break above 1.08 will open doors for 1.10 before heading down again, broader range continue to be 1.0465-1.1050. It’s advisable to keep selling on upticks. Immediate marginal support is seen at 1.06-1.0620 levels from where a correction to 1.0750 cannot be ruled out.In Eur/INR terms the range play have shifted to 71.50-68.50 from 70-72.70 earlier.

Time to buy Nifty Calls

Author:-Mr. Ritesh Victor

Posted Date:-13-Nov-2015

After a good run from 2nd week of Sept15 till 23rd Oct15, declines in Nifty does not seem to end. At 8260 (please check our mail below), we had anticipated a move towards our first target of 8088, followed by a decline below 8000. Well, the decline has taken place (though slightly earlier than expected).

 

History is history......What lies ahead??

 

The recent price declines have happened with sparse trading volumes – the downtrend does not look to have widespread participation. Moreover, momentum indicators and oscillators are gradually moving towards the oversold territory. Nifty opened today with a down gap (of about 57 points) – notice the pink horizontal line – such gaps usually fills up. My sense is that the previous two lows of 7691 (29Sept15) and 7539 (8Sept15) would act as strong support region (yellow horizontal lines). Probably, we will see a move towards this region, followed by a handsome recovery above the 8000 mark.

 

Time to reverse the earlier strategy – go ahead with Nifty Calls.

 

Any Nifty move below the low of 7539 would negate our optimistic judgement.

 

USDINR-65.60-65.70 target met

Author:-Mr. Nitesh Sharma

Posted Date:-03-Nov-2015

Very precisely we met our near term range of 65.60-65.70( market made a high of 65.62 yesterday) and retracement thereafter as expected in trail mails. With Global markets on risk on mode( can’t say how long) the rupee weakness has taken a breather around 65.60 levels .

 

Whats now on chart?

 

From here we expect selling pressure will continue from exporters above 65.55 levels and on the downside good buying interest will be seen below 65.25.The range play for the near term will be 65.20-65.65 with any extension limited to 65.10/65.75 on either side. Momentum indicators hints on the down side. Immediate good support is seen at 65.38 on a break  of which focus will shift to our lower range of 65.20 levels. On the upside it will be difficult to make a close above 65.75 at current scenario and if it happens to break due to some global factors then we may steep rupee weakness .As advised earlier exporters should take this opportunity to hedge their exports above 65.55 levels.

Nifty outlook

Author:-Mr. Nitesh Sharma

Posted Date:-03-Nov-2015

We met our Nifty target of 8000( made a low of 7995 yesterday) as shared in trail mail driven by global risk aversion on account of bad data  prints from China.

 

Whats now on charts?

 

Yesterday the daily closing was a hammer formation pattern in candle stick. My readers by now might know the implication of a “hammer formation” in a bear market. It’s a trend reversal( marginal in this case) as we are still in the short term consolidation phase. From here I will expect for atleast next 2-3 days market can be positive supported by global risk on mode and head towards 8185-8210 levels before sliding back again to these levels. On the downside a break of 7990 will pull it deeper towards our lower range at 7950 .I will rely on the hammer formation to look some retracement to the above said levels and bring some relief on a 5 days losing streak .

USDINR-breaks 65.18-65.25 range

Author:-Mr. Nitesh Sharma

Posted Date:-30-Oct-2015

Finally , after making 3 attempts to 65.18-65.25 levels, USD/INR breaks major hurdle to swiftly close yesterday at 65.29.We had warned importers to stay hedge for mid November and exporters to stay aside for 65.50-65.70 levels.As expected double bottom worked out very well and very precisely rupee weakened to the desired level as per our trail mail. The trigger point has been the hawkish comment from the FED hinting the possibilities of rate hike in December meeting.

 

What’s now on charts:

 

The resistance has now turned a support zone at 65.17-65.18 levels and importers are advised to cover at these particular rates for immediate near term payments. For exporters there is a good possibility that we may get to see 65.55-65.70 in next 10-15 days with pressure building from global USD strength and Nifty losing steam to scale above 8300 mark. Near term range has shifted to 65.18-65.75 from 64.75-65.20 as we had anticipated earlier and once if we get to see 65.60-65.70 levels we expect good selling interest coming from exporters to hedge their medium/long term exposure post which market will consolidate between 65.20-65.75 before giving any fresh directions.

EURO breaks 2015 trendline

Author:-Mr. Nitesh Sharma

Posted Date:-29-Oct-2015

Refer our previous report chart where we emphasized the importance of the 2015 upward sloping chart and the consequences of breaking that trend line if it happens. As seen in the chart below euro breaks 2015 upward sloping line marked around 1.1040-1.1060. As a technical chartist for me the direction in Euro is firm for a move to 1.08 first , followed with 1.0465-1.05 and finally my medium term target of 1.0280  which should probably happen ahead of second quarter 2016.We have been strongly advising our euro exporter clients to stay hedged for the medium term .The near term range in pair has shifted to 1.0450-1.1050 with extension beyond that unsustainable in short term. The consolidation of the bear phase which started from 1.3990 to 1.0465 last year is over now and the bear run will continue from here uptil next year.

 

In EUR/INR terms the range has shifted from 72.50-74.20 to 70-72.70 now. While we expect rupee to be more stable around 65.50-65.70 levels hence EUR/INR will be under pressure for a move towards 70 and gradually to 69 levels. On the upside the immediate resistance is seen at 71.60 .A break of 71.60 will shift the focus to upper range at 72.50.Having said that the downside risk is more than upward risk and hedging should begin from 71.50 level itself ( current spot is 71.20) .Traders may sell in two lots one at 71.50 and 72.50 for a target of 150 paisa.

 

Dollar Index (DXY)- Reversal as expected

Author:-Mr. Nitesh Sharma

Posted Date:-29-Oct-2015

Dollar surged sharply as FOMC kept overnight federal funds rate unchanged at 0-0.25% but signaled the possibility of a December rate hike. Dollar index jumped to as high as 97.81.The biggest surprise to the markets in the FOMC statement was that "in determining whether it will be appropriate to raise the target range at its next meeting, the Committee will assess progress--both realized and expected--toward its objectives of maximum employment and 2 percent inflation." The phrase "next meeting" explicitly opened the possibility of December hike. Fed also sounded upbeat on the economy as the economy has been expanding "at a moderate pace".

 

Fed future futures implied 43% chance of December rate hike comparing to prior day's 33%. Meanwhile, markets are seeing 67% chance of rate hike by March, comparing to prior day's 57%.

 

 

DXY reversed its trend as we expected but from 92.75 levels to meet our objective of 96+ levels as shared in trail mail. We had warned the momentum was picking up for Dollar bull( dollar strength) in coming days which could pressure EURO/GBP/INR torwards depreciation. Very precisely euro moved from 1.14 levels 1.09 levels and rupee back from 64.75 to 65.10-65.20 levels.

 

Whats on DXY chart?

 

As seen on the weekly chart below the downward sloping line is broken(similar to Euro trend line) on the upside as shown by a circle .The range from 92.50-96.50 has shifted to 95.50-99.50 now with biased towards upside. From here immediate buying will be seen around 96.85 and on the upside our target will be 99.20-99.50 in coming weeks. On weekly chart momentum indicators are supporting for good upside from here which will push euro lower towards 1.08 and yen towards 123.We expect GBP to be more stable compared to Euro and yen.

 

Time to buy Nifty Put

Author:-Mr. Ritesh Victor

Posted Date:-26-Oct-2015

Nifty has had a good run – gaining consistently from a low of 7546 to the current peak around 8336. The rally has been rather fragile and hesitant. Throughout the rally, trading volumes have declined (suggesting that the move is not really a strong and healthy one).

 

Today, Nifty attempted 8336 (thereby closing the down gap formed on 20-21Aug15) – usually such gaps tend to act as resistances. Moreover, there is a trend channel resistance around 8350 – 8400. The 144-day simple moving average (which on many past occasions has indicated turning points) is at 8266. Momentum indicators and oscillators are predominantly in the overbought territory. MACD Forest is indicating a negative divergence.

 

Is it an appropriate time to buy Nifty Puts?

 

The first target would be the daily low at 8088 (13Oct15), followed by the psychologically crucial 8000 mark. Any move beyond 8400 (breaking the long standing trend channel) would rescind our assessment.

EURO outlook- Dovish comments hammers EUR

Author:-Mr. Nitesh Sharma

Posted Date:-23-Oct-2015

Off late since a month market was speculating over the ECB expanding the QE program and chances of Euro above 1.15 were quite remote and it was expected to trade between the broader range of 1.10-1.15 levels, any overshoot was not expected to hold. In our report of DXY( dollar index) we warned our Euro exporters not to chase for gains beyond 1.1420 mark and asked them to stay hedge for near months( refer mail sent on 13th October on DXY). With the Eurozone struggling with little growth and a lack of inflation, the ECB was under growing pressure to take action and kick-start the ailing economy. There isn't much room for the central bank to lower interest rates, which currently stand at record low levels of 0.05%. This leaves the ECB the option of expanding the current QE program of EUR 60 billion/month.

Yesterday  ECB left interest rates unchanged as expected, but the Euro was hammered by aggressive selling post Draghi’s Dovish comments that they are not only willing to expand their QE asset purchasing program  but gave the nod that they are actively exploring ways to do so.The broad comments can be summarized as:

 

  • Governing Council willing and able to act by using all tools within its mandate if warranted for an appropriate degree of monetary accommodation
  • The degree of monetary policy accommodation will need to be re-examined at their December monetary policy meeting
  • The asset purchase programme provides sufficient flexibility in terms of adjusting its size, composition and duration
  • QE will run until the ECB sees a sustained adjustment in the path of inflation consistent with its target
  • ECB considered cutting the deposit rate further
  • There are risks which could further slow the gradual increase in inflation rates towards levels closer to 2%.Risks to the growth outlook remain on downside, reflecting in particular heightened uncertainties from emerging market economies

 

Downbeat  assessment of the European economy and repeated comments about adjusting the bank's QE program, including the nod to “re-examining” the program ahead of December's meeting, is as clear a signal that the ECB is likely to expand QE this year . Draghi even noted that the bank would be vigilant about risks to inflation.

 

Whats now on charts?

On the chart EUR/USD is holding in the upward sloping  trend line around 1.1050-1.1060 levels. While we hold to our medium to long term view of 1.0280 ( currently at 1.1115) on the pair however the view will be more authenticate post this trend line breaks as seen in below chart which has been holding since March 2015.As of now I do not feel this will be broken and there is a good possibility that Euro will bounce back above 1.12 in coming days .Exporters might have covered above 1.14 levels ( Euro/INR above 74).Those who missed the opportunity can wait for some correction above 1.12 around 1.125-1.1285 levels( similarly around 73 in Eur/INR) and continue to hold until the trendline breaks on the downside.

 

 

USDINR-Double bottom formation?

Author:-Mr. Nitesh Sharma

Posted Date:-21-Oct-2015

As expected rupee could not sustain further appreciation and the medium term trend line worked out rock solid as seen on the weekly chart below and shared earlier in trail mail. The correction from 65.1825 got extended back to 64.73 levels to form a “double bottom formation “ as seen on the daily chart only to revalidate our stance for weaker rupee in coming days which is also supported by DXY at 92.50-93.50 levels. The rally from 66.30 to 64.70 levels were primarily driven by anticipation and positioning  of Debt inflows as RBI changed the Debt limit from USD to INR resulting to additional FII flows in debt to the extent of USD 2 .55 bn since the time window was opened on 12th October.Below bar chart indicates the daily FII flows into the market since Monday the 12th October and since then roughly USD 2.55 bn has poured in and now the free limit is going to exhaust soon. So during the time when actual inflows came the pair was holding to 64.70-64.75 levels.Not sure even RBI may have been on the bid to check rupee appreciation.The major positioning might have been over now and may see some unwinding from the traders to push back rupee towards 65.60-65.70 around mid November. A firm confirmation will be break of 65.18-65.25 levels indicated as a neckline resistance to confirm a move towards 65.60-65.70.

 

Exporters need not hurry and may wait for a confirmation on a break of 65.18-65.25 levels to swiftly watch rupee guiding to 65.55-65.60 levels while importers we presume might have been sitting tight till mid Nov as advised earlier.

Vanilla Options are quite cheap now

Author:-Mr. Ritesh Victor

Posted Date:-19-Oct-2015

USDINR seems to have found comfort (and stability) around 64.70-65.00 range. Range bound movements have pulled down the USDINR volatility to levels around 6% - notice the red, blue and green horizontal lines in the attached chart (towards the lower right side). One can notice that USDINR volatility has come down substantially and is nearing multi-year lows. In such a scenario, vanilla options come in quite cheap.

Let’s compare vanilla option prices at different time periods:

For a 3 month maturity, USD Call or USD Put with at-the-money strikes (Vanilla option strike price = forward rate)

 

DATE

VOLATILITY

OPTION PREMIUM

CHANGE FROM PEAK

(%age)

(INR per USD)

(%age)

24-Aug-15

8%

1.04

 

10-Sep-15

7%

0.91

13%

19-Oct-15

6.15%

0.80

23%

 

FOR IMPORTERS:

Rupee’s recovery from 66.70+ levels has been a ‘GOD sent’ blessing – one should capitalize: use options and forwards both (preferably in a 60% - 40% ratio in favour of options)

 

FOR EXPORTERS:

With rupee gaining more than 2.5% in a month, forwards does not look attractive at all. Use options extensively – they are cheap now. If rupee does weaken from here on (high probability scenario), we will be able to ride the weakness (forwards would result in opportunity losses). If rupee gains further (low probability scenario), dollar downside is protected as well.

USDINR-Reversal happened

Author:-Nitesh Sharma

Posted Date:-14-Oct-2015

Very precisely we saw the reversal in the USD/INR pair as we spoke about on 12th October .The reversal has been quick and sharp and erased 3 days gain in a single day. We had almost met our first target of 65.20( high of 65.1825 yesterday) on successful breach of 64.85-64.90 levels .Fall from 65.18 to today’s 65.06 levels is construed as a correction  and downside will be limited to 64.93-65.00 levels. Those importers who  could not capture the 64.70-64.80 levels should not chase for any gains below 64.90 now. Even 65.00-65.05 levels not a bad level to stay hedged for the immediate term payments of 5-7 days. From here as shared downside can be  limited to 64.93-65.00 and on upside we will target 65.55-65.60 in near term .65.55 will find stiff resistance to break which is also 38.2% Fibonacci retracement of the fall  from 66.89-64.70 .Gradually it’s likely that range shift will   happen from 64.85-65.20 to 65.20-65.60 in a fortnight post which consolidation between 65.20-65.60 for fresh direction. Importers are advised to stay hedge and exporters may start selling  from 65.45 levels for their near term receivable.

Nifty - 8200 target met and reversal as expected

Author:-Mr. Nitesh Sharma

Posted Date:-13-Oct-2015

Quite precisely Nifty set up for our 8200 target  from 7750 as shared previously and retraced thereafter making a high of 8244.Currently at 8137 selling pressure will intensify above 8200 for shifting it to play within the range of 7970-8250.As per the charts its likely to make a test of 8000 in coming days and should find support at 7978(38.2% Fibonacci retracement of a move from 7539 to 8244  to move sideways and move sideways before any future guidance. Even a robust IIP of 6.4% could not hold the 8200 mark.

Dollar Index (DXY)- Trend reversal??

Author:-Mr. Nitesh Sharma

Posted Date:-13-Oct-2015

It’s been over  a month that we had shared our last  view on DXY(dollar index).In our previous report sent on 24th august we had shared the chances of DXY to test 93.50 and reverse from there. On the same day DXY made a low of 92.62 and reversed it’s losses to make 2 attempts around  96.50-96.71 before reversing its gain and coming back to 94.90 as i write today. Yesterday DXY formed a “Hammer formation” on a daily chart indicating undeceive market and trend reversal from current levels and can be a good possibility of Dollar gain in coming days .DXY has found good support around 94.50-94.70 and from here reversal back above 96 is very likely thereby adding further pressure on USD/INR for a move to 65.10-65.20 levels and pressure will be seen in EUR/USD and GBP/USD similarly.Euro exporters should not chase for too much gains above 1.1375-1.1420 and should stay hedged for the near term exports receipt.

USDINR-reversal anytime

Author:-Mr. Nitesh Sharma

Posted Date:-12-Oct-2015

We are almost there into our lower range of quarterly rupee outlook of 64.60-67.25 uptil December as shared previously. Currently trading at 64.72 levels downside is very limited from here and as seen in the chart it is supported by the major medium term trend line support around 64.45-64.60 levels. From here downside will be limited to 15-20 paisa and a sharp recovery will come into play for a first target of 65.20 on a break of 64.85-64.90.A break of 64.85-90 will confirm the bottom has been formed and will confirm an upside move .Slow stocs indicates a buy signal hence importers are advised to stay cover for the month of October and mid November .Exporters are advised to sit aside and wait for rupee to recover towards 65.20-65.60 levels. It’s time that we target for rupee to trade our upper range of  66.50-67.25 around December-January. Importer be cautious and watch for trend reversal sign!!

 

Big dollar support at 64.80 - 65.00

Author:-Mr. Ritesh Victor

Posted Date:-10-Oct-2015

USD/INR is currently trading at a medium term support line and it doesn’t seems to be break, as from September 2011 the pair is following the same support line, now the base of that line is shifted to around 64.80-65.00 kind of levels. The chart is clearly showing that the pair tested many attempts and everytime after testing it can go higher that’s why this one is supposed to be a strong support level. 

 

Nifty outperforming??

Author:-Ritesh Victor

Posted Date:-09-Sep-2015

Yesterday, Nifty declined to its lowest level since Aug14, closing below the 7600 mark (though it recovered handsomely today to regain that mark). Indian equities have witnessed large scale exodus by foreign institutional investors (FIIs) since mid of Aug15. In a scenario where external events are driving domestic equities and currency, it’s worth a thought analysing Nifty’s performance vis-a-vis other major global equity indices.

Have a look at the attached rebasing chart – all indices rebased to 100 as on beginning of May’15 till date - Nifty (white solid line) is compared with the global majors – US (Dow Industrials and NASDAQ – red and orange dashed lines), Asia (Nikkei, Hang Seng and Shanghai Composite – green, purple and yellow solid lines) and Europe (DAX, CAC and FTSE100 – dark blue, grey and light blue dotted lines).

There are no points for guessing who fell the most – Shanghai Composite (a whopping 30%). Close on the heels is Hang Seng with 24% decline. Europe is down 9 – 12% and US lost value by 7 – 11%. In this widespread pessimism, Nifty is lower by 8%.  

Vanilla options better than forwards - PART 2

Author:-Ritesh Victor

Posted Date:-07-Sep-2015

In continuation to the mail sent last week, following looks to be prudent forex risk management strategies for exporters/importers:

 

FOR IMPORTERS:

With rupee weakening in excess of 4% in just about a month, forwards are just too expensive for dollar importers with 1 month forward at 67.17 (spot 66.80). In such a scenario, buying vanilla options are the best bet.

Option premium for a 1 month vanilla dollar call with strike price at 67.17 (ATMF) is 55 paise

Option premium for a 1 month vanilla dollar call with strike price at 66.80 (ATMS) is 72 paise

With rupee weakening relentlessly, paying some option premium by protecting the downside (as well as upside) looks to be a far safer strategy than a simple forward (which protects only the dollar upside).

 

FOR EXPORTERS:

Rupee weakness has anyways gone in our favour. Need to capitalize with some hedges:

Participating Forward: for 6 months: Zero Cost - spot 66.80 and 6 months forward rate: 68.95

Buy USD Put for $1 million at 68

Sell USD Call for $0.5 million at 68

If Spot at maturity is below 68, we sell $1 million at 68

If Spot at maturity is above 68, we sell $0.5 million at 68 and balance $0.5 million at the market rate

Vanilla options better than forwards

Author:-Ritesh Victor

Posted Date:-04-Sep-2015

After a spike in global volatility (VIX surged above 50 on 24 Aug15), things have calmed down in the last 2-3 days (VIX around 26), but still away from the steady times of VIX around 15-20.

Rupee is holding near the 66.20 levels (after plummeting to 66.765 on 25 Aug15). So, is the new range around 65-67 or 64-66? Only time will tell.

With large scale global uncertainty behind us, going ahead, Rupee would (most likely) recover towards 65.40-60.

In such a scenario, export hedging using forwards could be risky. Vanilla Put Options are a much better choice.

 

Spot reference: 66.23

3 month forward premium: 110 paise

3 month forward rate : 67.33

Vanilla option premium for USD Put at 67.33 is 90 paise

Worst case rate (minimum realization): 66.43

6 month forward premium: 218 paise

6 month forward rate : 68.41

Vanilla option premium for USD Put at 68.41 is 128 paise

Worst case rate (minimum realization): 67.13

Sell USD/INR for a target of 65.60 stop loss 66.52

Author:-Nitesh Sharma

Posted Date:-02-Sep-2015

Its been quite a one sided move for the rupee from 63.73 to 66.76 levels in just 10 working days, credit goes to China and Greece on this move .While we initially estimated to rally to cool off around 65.50 levels and expected it to consolidate for finally testing crucial strategic resisitance zone of 66.70-67.25 levels however it was a straight move to 66.76 without any stop .Market is consolidating and as indicators suggest rupee can test 65.60 in a short span of time.65.60 is the 38.2% retracement for a rally from 63.73 to 66.76.We recommend a sell around 66.25-66.35 with a stop loss of 66.50 levels and a take profit of 65.60.A break of 66.50 will open door for further weakness beyond 66.76 for a move to 67.25.In a worst case scenarios we are not looking rupee weakness beyond 67.25 uptil december.Immediate support is seen at 66 followed by 65.85.For coming quarter( Sep- december) market will find a range between 64.60-67.25.Importers should start covering around 65.60-65.70 levels and exporters should start covering in 2 lots, one at current levels and second if we get to see 67.25 in this rally.

EURO outlook- profit booked

Author:-Nitesh Sharma

Posted Date:-02-Sep-2015

As shared in trail mail EUR/INR found good support around 74 levels and looks to be consolidating between 74-75.25 levels for last couple of days.We exited our long position yesterday between 74.85-75 levels for long initiated around 74.25 levels and would like to stay aside for a while now for better clarity.We stand neutral at the moment. 

Nifty outlook

Author:-Nitesh Sharma

Posted Date:-24-Aug-2015

Sell-off in Chinese stock market accelerates as it drags Asian regional markets down. Shanghai Composite erased all of its 2015 gains as it dropped -8.60% while its tech-heavy counterpart, the Shenzhen Composite, fell 7.73%. In Hong Kong ,the Hang Seng followed the lead and retreated -5.17% to 21,351 points. Japanese Nikkei dropped 4.61% and NIFTY by 5.9% to close at 7809.While there was no doubt the market was looking bearish and it was difficult for Nifty to sustain above 8650-8700 levels and a move to 8200 and 8000 was most likely but not that fast.Harldy anybody would have expected that we will see 7800 levels from 8500 levels in just 3 working day. Indeed it was a carnage.

 

What’s now? On the charts Nifty is very well supported by the long term trend line around 7250-7300 levels as seen in the chart. So the first thumb rule is do not expect any correction below that levels irrespective of what market analyst says . From the current levels of 7800 immediate firm support is seen at 7540-7600 from where Nifty will bounce back for its first attempt to 7950-8050.7542 is the 50% Fibonacci retracement for a rally from 5948 till 9136, hence market may find good support around that level. A failure to breach 8050 will redirect the market for another minor correction around the same levels or  max to 7250-7300 to test the trend line support .A correction from those levels will confirm  the end of Nifty correction and will mark its first correction rally to 8250 levels and from medium term perspective , a breach of 8250 will  direct market to 8500 and 9000 again next year. For long term investor it’s a value buying below 7600 levels.

 

Dollar Index (DXY)- On way to 93.50

Author:-Nitesh Sharma

Posted Date:-24-Aug-2015

DXY “ Head and Shoulder” worked very precisely .The same day  DXY reversed its gain from 97 levels to test 96 first and on the break of the neckline of 96,immediately fell to 94.26 as I wirte. The potential for Greece risks to steal headlines once again have also returned following the announcement of a snap-election in September and when you combine all of the above risks together along with China, the markets are exposed to further vulnerabilities and it is difficult to expect a rebound anytime soon. As discussed in trail mail EURO tested 1.14 levels and JPY 121 as expected.Pound as expected is the laggard.There is no sign of reversal yet and would continue to hold our view for 93.50  and be cautious for any sign of reversal.

 

EUR /USD- Bullish momentum building

Author:-Nitesh Sharma

Posted Date:-17-Aug-2015

Last week the People's Bank of China (PBoC) shocked the market by lowering its reference rate for USD/CNY by 1.9% in one day, the largest move since the mid-1990s; then in the following day its lowered by another 1.6% .

The move by the PBoC was designed to ease some pressure on China's export market and was in direct response to dismal economic data out of China. Exports fell 8.3% y/y and imports fell for the ninth month in a row in July (-8.1% y/y). Clearly the domestic economy is struggling from a lack of demand, both from within China and globally, and a relatively strong currency. The dramatic drop in the reference rate should make Chinese exports more competitive and, in turn, spur economic growth. It also has seemingly improved the yuan's chances of being included in the IMF's exclusive special drawings rights (SDR) basket.

There are two main criteria to determine whether a currency can be included in the SDR. The currency must be freely tradable and the issuing nation must be a major player in the export market. There's no doubt that China satisfies the latter - it stands behind Europe and the US but ahead of Japan and the UK in regards to contribution to global exports - but the yuan is not freely tradable as we know.The renminbi (RMB) is loosely pegged to the US dollar, there are restrictions on how much residents can take out of the country and it's hard to get even the limited amount of money allowed into its capital markets.

The impact on the market was severe, rupee opened at a gap up of 64.55 and immediately tested 65.25 levels in two days, Euro broke crucial resistance zone of 1.1060 and tested 1.12 levels  and yen appreciated from 125.20 levels to 123.80 on account of risk aversion. While US has echoed that they will be continue with the rate hike in September provided data supports which was later supported by Chinese officials ( reason for not devaluing for the third time) but I doubt. Too much uncertainty has build up for near future and as we approach September we can only lead to volatility  in the near future and market will keep shifting from Risk off mode to risk on side.

Whats now on charts?

Last week we were on the selling side in EUR/INR around 70.50-71 levels and were caught on the wrong foot on account of surprise Yuan devaluation and immediately the pair scaled up to 72.60 levels. Having tested 1.1215 levels and retraced back to 1.1063 levels, we  expect some sideways trading for possible momentum build up for 1.14 levels in near term and downside will be limited to 1.0980-1.1020 levels.A break of 1.0950 will confirm the downside move has resumed again. The near term range has shifted  to 71-74 levels. Short initiated should be exited around 71-71.50 levels and we should stay aside for better clarity .Immediate resistance is seen around 72.70 levels and as seen in the chart closure above 72.70 will swiftly take it to 73.50+ levels .

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GBP/INR outlook

Author:-Nitesh Sharma

Posted Date:-17-Aug-2015

We exited all long position in GBP/INR  initiated at 99 levels as shared in trail mail and would like to be on the sell side between 103.20-103.80 levels last seen in August 2014.As seen  in the chart GBP/INR continue to trade within the channel and the major recovery was on account of Rupee weakness from 63.70 to 65.20  than any major move in GBP/USD.GBP/USD is still consolidating between 1.5540-1.57 levels and we would stay neutral at the moment for any breakout in the GBP/USD pair. Slow stoc is quite oversold and a retracement should be on the cards. On the downside the target for take profit should be between 100-100.50 levels.

 

Has Rupee lost its value??

Author:-Ritesh Victor

Posted Date:-12-Aug-2015

Rupee’s sharp fall has taken everyone by surprise (specially after prolonged periods of low volatility). Is it actually a sharp fall?? Has it really plunged in value??

Have a look at the enclosed chart. It is a rebased chart – comparing currency movements versus the dollar since 1 Aug’15 till date on a base of 100.

Yuan’s weakness has been in excess of 3.5% in the past 2 days (courtesy PBoC).

Russian Rouble and Malaysian Ringgitt have plummeted more than 5%.

Most of the Asian currencies (Korean Won, Singapore Dollar, Philippine Peso, Indonesian Rupiah) have weakened 1.5-3%.

R currencies and similar ones too (Brazilian Real, South African Rand, Mexican Peso) have declined by 1-2%.

In this turmoil, Rupee has lost value by around 1.2%.

Has it really lost value??

 

 

USD/INR accumulating momemtum for 64.50 levels

Author:-Nitesh

Posted Date:-12-Jun-2015

Very precisely rupee moved as per our script , pair failed to attempt below 63.70-63.75 levels range where we asked our importers to stay hedge for near term  target of 64.10 and above .Rupee made 3 attempts on 3rd,5th and 11th June around 63.75 but bounced back immediately. What's going forward? Currently rupee is trading at 64 from where our first target is 64.25-64.27 levels. Probably I feel this time the major hurdle  will breach for a move to 64.50-64.60 levels where we expect exporter selling to resume . Rupee has  gathered enough momentum between 63.60-64.25 levels for almost a month now for it to make an attempt towards 64.50 now but as goes in technical charting is "IF"  pair closes above 64.28 then we will see 64.50 but likely this time we will. So what can be the trigger point for this break out?Will it be the crashing Sensex( outflows from equity and debt) or the Greece concern or FED FOMC meet. This is something to watch our for. Momentum indicators are neutral indicating more sideways trading range. 

Focus back on Greece negotiation and German yields

Author:-Nitesh

Posted Date:-05-Jun-2015

We were surprised by the Euro bounce back  from 1.10 to 1.1389 earlier this week. There is only one thing driving the EUR this week, and that is the jump in German bond yields. Since the start of this week, EURUSD has followed German bond yields 92% of the time. To put this in context, at the start of this year, EURUSD and 10-year German yields had an insignificant correlation of 24%, at the start of May this rose to 53%, before surging in the second half of last month (see  chart below). This suggests a couple of things:

  • Yields are the key driver of the FX market right now, so if you trade in  FX  market better watch the bond market.
  • This suggests that the market is focused on central bank movements, which could signal a volatile  market sentiment  on back of central bank comments.
  • For now, the market is more concerned with the prospect of the ECB ending QE on the back of rising inflation pressures, not with Fed interest rate hikes, but that could change after Today's payrolls.

 

The risk to German bond yields:

Although German bund yields have risen at a furious pace this week, there is a risk of a reversal due to:

  • Greece: if we get a Greek default then we could see safe haven flows into German debt markets and yields start to move south.
  • US payrolls: a big test for German yields will be how they respond to a large US payrolls number. If we get a strong 225k+reading in US payrolls today and German yields continue to move higher, then that would suggest that the trend is strong and could be here to stay, it would also bode well for the EUR.

Takeaway:

  • Wednesday's ECB meeting added fuel to the German bond yield fire.
  • 10-year German yields are now at their highest level since Oct 2014.
  • This has helped the German - US spread to narrow and boosted EURUSD.
  • The real test for German yields is whether the uptrend can survive a strong NFP reading today.
  • If yes, then EURUSD may break out to the topside of its long-term range above 1.15, opening the way towards January highs at 1.20 else back to 1.10.

http://www.actionforex.com/images/stories/contributors/forexcom/2015060461.gifhttp://www.actionforex.com/images/stories/contributors/forexcom/2015060462.gif

 

 

 

Euro retreats back  mildly yesterday again on news from Greece and as markets await employment data from US. Nonetheless. Greece invoked a rarely used option and requested to bundle today's payment to IMF together with the other three totalling EUR 1.6b, and put them off till end of June. That was a surprise to the markets as IMF chief Christine Lagarde expressed her confidence that Greece would pay the loan payment today. Euro retraced from 1.138 to 1.1180 and currently trades at 1.1221 as i write.

 

On charts:

 

As said we did not expect euro bounce from 1.10-1.138.We stand neutral at this point of time for sideways trading between 1.0980-1.1350 and will look for direction from NFP.Euro retraced yesterday from the downward trend line resistance as seen in the chart. The resistance has now shifted to 1.1330-1.1350 levels where we expect selling again for a move to 1.10 until the German bond yields steepen further post NFP.Support base has shifted to 1.0980-1.10 which needs to be broken for Euro bears to be on top. Overall, the pre-NFP data suggested that a solid number would likely be seen in NFP today with chance of an upside surprise.With a "Doji" formation( pattern in candle stick confirming a trend reversal) on daily DXY it can be expected that fair bit of correction can be seen DXY probably to 97 after testing low of 94.60 yesterday which means dollar strength.

 

 

 

Hawkish tone from RBI dented market expectation

Author:-Nitesh

Posted Date:-02-Jun-2015

USD/INR falls despite expected 25 bps rate cut as RBI stance on inflation blurs future rate cuts. While the rate cut was in line with expectation but it's future guidance on rates and upside risk to inflation risk including poor monsoon, global crude price may have dented the hope for future rate cuts. Pair immediately slipped from 63.72 pre-policy to 63.86 post policy on RBI hawkish tone. It's expected that traders who were sitting short on expectation of a rate cut will cut their position  on a hawkish tone. Even the Long tenor forwards are slightly up instead of coming down as traders booked profit on anticipation of no more hikes in medium term.

On charts:

As expected rupee corrected from 64.1575 ahead of our sell zone of 63.18-63.25 and now correction got   over at 63.60.Now fresh buying will resume at 63.70-63.75 levels for a target   of  64.10.Immediate hurdle is at 63.85 and once it's out of the way the pair will immediately move to 64.10.We warned importers to chase for gains beyond 63.75 levels and below it should not sustain .We continue to believe rupee will continue to depreciate incoming days towards 64.10-64.20 levels. Good support is seen at 63.72 .

Euro/USD selling pressure to continue under 1.1050

Author:-Nitesh

Posted Date:-02-Jun-2015

In Capital markets, this week market movement within the various asset classes will be dictated by a glut of economic releases and a number of Central Bank rate announcements. Nonetheless, investors should be expecting both Greece, ahead of it's +€300m IMF payment, along with the  U.S , non-farm payrolls , to be the highlights of this week's trading both due this Friday

 

The self-imposed Greek end of May deadline has passed without a deal with its creditors' (IMF, ECB or EU). This will only heighten market tension as the first deadline schedule for June dawns near. Will the market witness any progress from Greece before Fridays first IMF payment is due?

Manufacturing activity in the euro zone grew more rapidly, but the results were mixed - Spain and Italy saw a strong pickup, while France was revised up a fraction, but Germany - the Euro zone's backbone - was weaker and it's slowest recorded pace in three-months. The Euro zone composite was revised down a fraction to 52.2 vs. market expectations of 52.3. The surveys indicated that the weaker EUR is certainly helping manufactures to win new export orders, while also raising costs for manufacturing by lifting import prices. The problem however is that Euro businesses are not raising their own domestic prices which will only makes the ECB's job even harder, especially as they are trying to lift the areas inflation targets back to their desired +2% level. Hence the importance of the ECB QE program.

The ECB is hoping that with QE, a weaker Euro will eventually boost inflation by raising prices of imported goods enough that they will have to be passed on to the consumer - only time will tell how effective their QE program will be.

Whats on Charts?

Pair witnessed heavy selling at 73 ( our sell zone of 73-74) in the last rally, pushing it at lower end  at 71-71.50.With 71-71.50 support giving away it swiftly fell below 70 handle.It all happen as DXY shifted its base from 93 to 95-97 levels confirming the USD correction is over . With DXY still looking in favour of a move to 99 in coming days it's very likely that EUR/USD will test 1.0820 mark and only on the break of 1.0820 , market will start focusing on  1.0650 levels. Immediate selling will be  seen at 1.0950 followed by 1.10 handle ( currently trading at 1.0930).Only a closure above 1.10450 mark will nullify the downward trend in Euro.Till then keep selling on upticks.

On Euro/INR pair the range has shifted to 68.20-70.20 with overshoot  limited to 68 and 70.50 . From here at 69.75 we target euro can further slide to 68.50 and hence recommend a sell. Euro exporters who have already sold at 73 will have to content with 69.75/70.00  levels at the moment. Sell here at two lots, one at 69.75 and another at 70.20 which can be possible if Rupee pushes to 64 on repo rate cut.