FX Market Thought for 3rd Dec,2010

The Indian rupee was mostly stable against the US dollar on Thursday with the Dec contract survived above the 45.40 levels. The day’s trade was mostly in the range of 45.45-45.59 despite weak US dollar against the euro and the GBP. The EURINR gained modestly tracking directly from EURUSD in a stable USDINR environment. The GBPINR was sideways between 71.85-72.25.

In global markets, European currencies were slightly firm against the US dollar, on mild short covering and tight CDS spread in the European bond market. The EURUSD rose to 1.32 and GBPUSD returned above 1.56 marks. US stocks advanced for second day, up with DJIA which gained 96 points. UK’s FTSE closed up 2.22% and German DAX up by 1.32%.

In mid day news yesterday, IMF considered the detoriating situation of the Euro zone and said recovery in Europe remained helplessly sluggish. The IMF MD Dominique Strauss-Kahn ruled out any possibility of an impending double-dip recession.

In other developments, ECB gave some boost to markets. European Central Bank bond-buying actions spoke louder than the central bank president's measured words as per market participants. President Jean-Claude Trichet told a news conference the ECB would continue to conduct its main refinancing operations and the special term refinancing operations as fixed rate tender procedures with full allotment "for as long as necessary and at least until the end of the third maintenance period of 2011 on April 12, 2011.Apart from that, Spain brought managed to sell €2.4bn of three-year bonds to investors, was 2.2 times oversubscribed.

It seems a temporality relief to the market, but concern remains on the public debt trouble. Any major pullback in the EURUSD is a indication to sell.

In data releases, US employment figures to catch attention of the market despite EU remains the driving factor. As per ADP private sector data on Thursday, U.S. private employers added 93,000 jobs in November, the biggest rise since November 2007, after an upwardly revised gain of 82,000 the month before.US Nonfarm payroll data due today is expected to show a 140,000 plus in November

For today, USDINR is a good bet to buy at lower levels, for Dec contract 45.25-28 seems to be a good level. EUINR and GBPINR cross trading seem risky.

Market Thought 02 Dec, 2010

USDINR Dec: The market has opened lower tracking correction of the US dollar index during the overnight session and firm global stocks. The Nifty has opened firm and is up by 62 points at the time of writing. The DJIA closed up 249 points yesterday in New York.

For today, the pair may see good support around 45.30-45.35 levels and if the level is maintained then a pullback can be seen from there towards the resistance of 45.55 levels. We recommend buying on dips towards the support of 45.30-45.35 levels for intraday. Preferred stop los below 45.20 levels.


EURINR Dec: The market opened a tad lower despite recovery of the EURUSD and USDINR fell further in the morning session today. The EURUSD recovered to 1.3181 levels yesterday and currently trading around 1.3120 levels. Today, if yesterday’s high is broken the pair may gain towards the major resistance of 1.33 levels.

The EURUSD prospect seems a bit positive for the day while weak USDINR may hinder a major recovery. The EURINR pair may see some support at 59.45-59.50 levels. The resistance is seen at 59.80 and then 59.95 levels. Risky traders can take longs on a decline towards 59.50 levels for a target of 59.75. Preferred stop los is 59.34.


GBPINR Dec: The pair opened down almost 25 paisa on weak USDINR despite GBPUSD managed to show some mild recovery yesterday. The GBPUSD major pair is expected to take resistance is seen at 1.5645 levels and above that recovery can be seen towards 1.5723 levels. If fails, then downward trend may resume towards the support of 1.5550.

The GBPINR pair is expected to stay weak below the 71.25-71.30 levels. The support is seen at 70.70-70.80 range. The market is expected to move in the broad range for the day. Buying at the lower levels is preferred.

JPYINR Dec: The cross pair opened lower on gains in the USDJPY along with decline in the USDINR pair further during the morning session. The USDJPY may see upward trend above the 84.40 levels and may see approaching 85.00 today. The support is seen at 83.80 levels. The UDJPY seems positive for the day.

Weak USDINR and firm USDJPY may keep the Indian cross lower for the day. It is better to stay on the selling side. Resistance is seen at 54.45 levels. The support is seen at 54.00 and then 53.85 levels.

Weekly Trading Strategy

Weekly Picks
USDINR Dec: Take shorts on rally to 46.15-46.20 for a target of 45.70 keeping stop loss above 46.50
EURINR Dec: Take long on declines to 60.50-60.60 for a target of 61.50 keeping stop loss order below 60.20
Buy Copper February contract on MCX around 380-378 for a target of 395 maintaining stop loss below 375
Sell Spot Gold at $1368-$1370 for a target of $1330 with stop loss above $1385

Lets have a review of FX and Commodities..( 24 Nov, 2010 11 AM)

Good Morning….

The overnight sell off in stocks and high yielder’s had little impact on Indian currency. The USDINR is almost flat; NIFY is up by 21 points.

The sovereign risk remains in the Euro area and it is expected to punish EUR against other currencies such as USD, JPY and GBP. But for today, consolidation is possible before the US market holiday tomorrow. The EURUSD is trading above the critical support of 1.33. I don’t see a major breakout this week. The 1.33 level breakout is possible may be next week or so and pull down the major pair to 1.29.

In case of USDINR, upside is limited till 45.70-45.75. I expect correction towards 45.50. As of now rates are treading around 45.68-70 range.

In major crosses, EURGBP may see sell off below 0.8441 till 0.837 (61.8% retracement of 0.8023-0.8941.

The EURJPY is expected to consolidate today, between 109.50-112.50
In commodities Copper may see mild buying interest till $8400 pet tone. NYMEX crude oil Jan 2011 to see mild pullback towards $83 a barrel.

In case of bullion $1385-$1390 will be critical level for Gold and not likely to gain above that for next 3-4 days.

USDINR best buying for Tuesday 23 Nov,2010

It was good start on Monday morning in Indian markets after Ireland bailout was almost looking final. But a late night development has casted doubt on probable bailout of Ireland.

The story goes this way, EURUSD fell over 180 points from the morning Asian session high, FTSE fell over a percent the DJIA is struggling to bring any buying sentiment. At the time of writing, the DJIA was down over 50 points.

It’s Ireland again back with some fresh political tension. Ireland's Green Party pulled the plug on Prime Minister Brian Cowen’s ruling coalition, saying it would leave the government once the 2011 budget and an international rescue were in place. A pair of independent members of parliament said Monday that they may not back the budget, potentially depriving the government of a working majority. It comes just a day after Ireland bowed to European pressure and applied for a bailout expected to total nearly 90 billion euros.

So on Tuesday, the market is expected to experience some long liquidation in the Asian session. The Indian rupee is likely to depreciate against the US dollar, the Euro as well as the GBP should see further sell off.
My pick for the day is USDINR. I feel the 45.70-45.80 is an achievable target and one should go long. ( Refer to my earlier article- Change in direction of Indian rupee for short term view)

Market Thought 22.11.10

A slight positive start of the day with few Asian shares up on Ireland Bailout on Sunday. At the time of writing, the NIKKEI is up 111 points, while China and Hong Kong is down marginally replicating the impact of Friday’s reserve requirement hike by the PBoC.The local NIFTY index is up by 578 points and SENSEX is higher by 200 points.

High yielding and commodity currencies are up against the greenback on European developments ignoring China as of now. Euro and GBP were up by 0.37% and 0.25% against the US dollar from Friday’s closing. AUD is up by half a percent and CAD is up 0.25%.Crude oil is up by 0.5% at electronic trading.

The International Monetary Fund and European Union agreed Sunday to support an emergency bailout for near-bankrupt Ireland. The exact size of the rescue package is still to be worked out and should be around 80 to 90 billion euros.

The market interest rate on two-year Irish bonds rocketed from 3.95 percent on Nov. 1 to 6.69 percent by Nov. 11, making the cost of borrowing prohibitively expensive for a government already deep in debt.

This may cool down selling interest in riskier asset classes but cannot rule out long liquidation in the coming days.

Commodity market for the day: Slight upside is possible in Base Metals, bullion and energy. Major upside seems unlikely. The economic data calendar is almost empty today except the Euro zone consumer confidence report for November at 8.30 PM.

Currencies Market: Looks positive for EUR and GBP today. One can look for buying EURINR cross pair. The USDINR is expected to stay in ranges.

Market Thought 19.11.10

Good Morning
It’s a late start of the day. Indian rupee is mostly stable against the US dollar while European currencies were slightly up against the INR.
Local Nifty Index fell by 60 points after almost flat opening. Indian markets failed to replicate the DJIA action where the index rose over 173 points during the New York session. In the electronic session now the DJIA future is down almost 20 points.
The Indian rupee is expected to be a flat against the US dollar today before any concrete decision is taken on Irish front. European and IMF leaders are at Dublin to decide on a possible bailout of debt ridden Ireland.
Markets and economists are now betting that Ireland will accept tens of billions of euros in loans from the European Union and the International Monetary Fund, which sent a joint mission to Dublin Thursday to begin talks. Ireland is reluctant to take a rescue package, fearing erosion of its sovereignty and pressure to change its coveted tax system.
Today, Indian rupee is expected to see range trading between 45.15 to 45.40, I would prefer buying at 45.15 rather selling at higher levels as change in Indian fundamentals suggest mild depreciation of Indian rupee.
As per the Indian cross is concerned, GBPINR is a good bet to buy. Preferred buying level for Nov contract is at 72.55. Expected target- 72.75-72.80
In commodities today, Silver looks buy for intraday. Crude oil should be range bound between $81 to $83 a barrel (NYMEX Jan Light Sweet)
In base Metals complex, range bound trading is expected following developments in Europe and market is looking for a concrete action from them.
AVOID AGGRESSIVE TRADING TODAY

Market Thought 18.11.10

The rupee ended weak against the US dollar on Tuesday as sell off continued in local stocks.The NIFTY benchmark index plunged 2.17% on Tuesday and DJIA fell almost 200 points in the overnight New York session. Indian markets were on a holiday on Wednesday observing Eid, so, USDINR is expected to see higher opening to replicate the development in the global market. The Nov contract on exchanges closed at 45.31, 11 paisa premium to the spot. The pair may open a 20 paisa plus and may see the Nov contract testing 45.65-45.70 today.

The Euro remained weak and fell almost 150 points from Monday closing. The EURUSD pair has been under pressure from past two weeks concerning Irish debt issue. The contagion risk took the spotlight during June after Greece was near bankruptcy. The EURUSD fell below 1.18 that time and has been recovering with improved market sentiment on austerity measures taken by PIIGS nations. The EURUSD recovered to almost 1.43 marks. Now, the fear is back again and it is going to put some pressure on Euro, may be at a limited pace.

The Irish debt issue can be contained but the fear is coming from Spain. According to market participants, Hedge funds have already begun to float to credit protection against Spanish bonds, expecting a crisis for Spain in the first quarter of next year. Few managers are trading with absolute conviction. Spain’s public debt as a proportion of GDP was 53 per cent at the end of last year, below the euro zone average of 79 per cent. It remains one of the lowest among the western economies in spite of heavy issuance in recent months.

Another point of concern for the market globally is the Chinese economic slowdown. China began to take steps towards reducing the growth of inflation in its economy. Reports showed that official inflation jumped to 4.4% in October from 3.6% in the previous month. Chinese tightening may dampen the global recovery phase. As per market expectations, rate tightening may be seen in the near term.

Under these circumstances, liquidation may be seen in global stocks, commodities as well as EM currencies. The US dollar may act as a flight of safety.

For today, we may see further pressure on the Indian rupee against the US dollar. The EURINR may stay weak but decline seems limited on firm USDINR.

Change in direction of Indian rupee

The softness of the IIP numbers and fresh EU problems seems like they will change the short term direction of the Indian rupee. The Indian rupee, emerging nation currency, has hitherto been appreciating on interest rate differential and rise in capital account inflows.

We are under a weak current account on rise in imports and moderate growth in the export sector, due to weakness in the developed market.India’s current account deficit is near 3%, rising from almost 1.3% in 2007. As per RBI, the current account deficit would be in the region of 3-3.5 per cent of the gross domestic product (GDP) this financial year. During the first quarter of the current financial year, the current account deficit has more than trebled to $13.7 billion, while the capital account surplus has risen to $17.5 billion.

The rupee outlook from the domestic front depends on the further developments in the capital account. It largely depends on further quantitative easing by the US or UK.A big issue for most of the emerging nations which has seen abrupt capital inflows from past few quarters is its sustainability. When the developed market recovers and start looking at interest rate hike, what will be the impact on the capital inflows?

I believe few hot money will be routing back to the DM’s and will put pressure on the emerging currencies and cause threat to different asset classes. Since January, India’s equity and bond markets have attracted a record $33.8 billion in foreign funds. However, during the same period foreign direct investment – which tends to be more long-term than inflows into the stock market – dropped 35 per cent, down to Rs 63,700 crore ($14.4 billion) from Rs 97,600 crore.

From the RBI monetary policy side, we see a pause in the rate hike cycle by the RBI despite inflation is not their comfort zone. Weak IIP numbers is expected to keep the Central bank to take backseat. Policy interest rates have been raised five times since the beginning of March 2010, raising the repo rate by 125 basis points and the reverse repo rate by 175 basis points.

Another issue for inflation is that, if it doesn’t moderate will cause in competitiveness of the export sector putting pressure on the current account.

From global fundamentals, the fresh public finance issues from the PIIGS nations is expected to erase gains of high yielding currencies. Investors in the DM may look for US dollar as flight of safety despite weak fundamentals.

I don’t see sharp gains in the US dollar in the international market while it can be expected against the Indian rupee on recent developments. A rally towards 46.50-47.00 seems possible in short term.