11 November 2014

TECHNICAL VIEW ON CURRENCY

Rupee Technical Report
Current Spot Quote: 61.50
View: Bearish (On rupee)
Target: 66.50
Time-frame: By Feb 2015
Strategy:  Create longs between 61-61.50 with a Stop loss of 57.8 for 66.50(Spot levels)

Rational

Currency Chart
As can be seen from the Charts USD-INR has a Strong support placed at 60.50 levels with other crucial trend line support placed at 61/61.2 levels. Just on a Standalone basis by looking at the charts, we feel USD-INR Pair would have probably bottomed and any dips could be used an opportunity to buy .
Inter-market Analysis
Over a period of time emphasis in the Technical world has shifted from Single Market work to a more intermarket approach. In an increasingly interrelated financial world, the ability to study all markets gives Technical Analysts a huge advantage. No markets move in isolation and analysis of one market should include all the others. The four major groups are stocks, bonds, commodities and currencies, of which, Dollar and commodities trend in opposite directions. We believe falling commodities especially Gold and Crude will continue to have positive effect on USD.
Gold has recently given a breakdown from Descending triangle continuation pattern and could further fall to lower levels. Given this context, it is likely that Dollar will strengthen further across other global currencies.
Significant underperformance of INR Vis-a-Vis Equities
We have seen nifty rallying close to 8-10% from the lows of 7700-7750 created on 17th Oct. However currency after turning volatile initially has been at the same levels of 61.5-62 levels.  We believe this trend is likely to continue till Nifty rallies and a rising Nifty will have minimal impact on the rupee. However once nifty starts correcting Rupee could also tumble. A closer look at the historical Seasonality pattern of Nifty reveals that Nifty has a seasonal tendency of topping out or atleast witnessing a sizable correction in the first quarter of every year especially January and February. Incase the event repeats and unfolds itself with Nifty Correcting in January and/or February we may see accelerated fall in rupee which could take rupee to 66-67 levels.
Dollar Index Chart
We have seen dollar Index Giving breakout out from “Complex Inverse Head and Shoulder Pattern”. A complex Inverse Head and Shoulder pattern is a variance of standard “Inverse Head and Shoulder Pattern” in which we could have 2 Heads and/or numerous shoulders. However the trading psychology remains the same. The 2 heads on the charts as can be seen by “H” can also be taken as a “Double Bottom formation”. Irrespectively of which ever Chart pattern we take, the view on Dollar Index remains upbeat .

Inflation Rate Differentials and Interest Rate Parity
Inflation Rate Differentials and purchasing power Parity forecasts that the exchange rate will change to offset price changes due to inflation. For example if prices in India (Inflation) will increase by 8% and prices in US (Inflation) will increase by 2%, the Inflation differentials between the two countries would be (8%-2%= 6%). This means that prices in India are expected to rise faster relative to prices in USA. In this situation, the purchasing Power Parity approach would forecast that the INR would have to depreciate by approximately 6% to keep prices between both countries relatively equal.
Interest rate Parity is a theory which states that the interest rate differential between two countries is equal to the differential between the foreign exchange rate and the spot exchange rate. Interest rate parity plays an essential role in foreign exchange markets, connecting interest rates, spot exchange rates and foreign exchange rates.
With Key Interest rates and Inflation still significantly higher in India than the US, We believe rupee will at least not rally here on and could even probably meet the targets of 66-77 as mentioned in this report. 
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1 comment:

  1. This is nice blog, i want to congratulate to author to create this.
    Support for CURRENCY USDINR Support is seen at 63.9500, 63.8000 and 63.7000 levels
    While resistance is seen 64.1500, 64.3000 and 64.4000 levels.
    Support for CURRENCY EURINR Support is seen at 78.0000, 77.9000 and 77.8000 levels
    While resistance is seen at 78.3000, 78.4000 and 78.5000 levels.
    Support for CURRENCY GBPINR Support is seen at 99.4000, 99.3000 and 99.2000 levels
    While resistance is seen at 99.7000, 99.8000 and 99.9000 levels.
    Support for CURRENCY JPYINR Support is seen at 53.1000, 53.0000 and 52.9000 levels
    While resistance is seen at 53.4000, 53.5000 and 53.6000 levels.


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