Making Sense

On the India Front, RBI released the minutes of the monetary policy meeting Feb 8, 2024.  The minutes offered nothing new and centered on the themes of demonstrated  Growth Resilience despite the Global Headwinds seen , Improving Global growth outlook,  Food price inflation continues to weigh , Fiscal discipline and quality of Government expenditure non-inflationary , geopolitical concerns pose risks , Challenges to achieving the last mile of inflation targets, markets are front running Central Banks in pricing the extent of accommodation in the year ahead and any premature moves could undermine the success achieved so far,  favorable monsoon holds the key. Additionally,  resilient growth gives the legroom to wait and allow complete monetary policy transmission. Aashima Goyal made an interesting point on the liquidity: in light of elevated real rates measures to ensure WACR stays near the repo rate are required. She recommended active management o...

US2s10s further flattened 3.70 bps as the front end of the curve lead the losses while US10s were broadly unchanged. The market implied cumulative pricing for rate cuts was further pared down with market now pricing in 78 bps of rate cuts and with the first cut fully priced in for July policy meeting .  Yields High Low Close DoD ▲ US 2Y          4.73          4.65          4.71                 4.40 US10Y          4.35          4.30          4.33             ...

Look at the charts below, USD index chart has a H&S formation and also a wedge formation which appears to be breaking out to the downside. 104.78 is the 61.8% Fibo retracement of the larger 107.35 to 100.62 and resistance offered by the trendline joining the Sep 22 top seen at 114.78.  Also the second chart will show a descending triangle in formation on the larger time frame.  We saw AUDUSD earlier breaking out of the wedge formation and EURUSD broke out earlier. I suggested AUDUSD long at 0.6520 and we briefly dipped to 0.6519 lows.  We see a shark pattern in USDJPY and the stops are clear at 151.00 for move lower. GBP continues to be a puzzle on the backdrop of multiple Head and Shoulder pattern but H&S are best traded on breakouts.  I am biased to short USD ahead of the 104.80 resistance.  Tell me your take on the charts?

This morning, China announced a 25 bps cut to the 5Y LPR while keeping the 1Y LPR unchanged and  RBA released the minutes of the monetary policy meeting on 5 – 6 Feb 2024. China - The consensus expectations were for a 10 bps cuts in the 5Y LPR and 5 bps cut in the 1Y LPR. The LPR cut in the longer tenor is indicative of China taking more constructive measures to revive the property market. On the RBA minutes -  Encouraging progress towards inflation driven by goods inflation and lower energy and food prices while services inflation continues to be sticky. Due to disruptions in Red Sea, there has been an increase in shipping costs which are seen relatively subdued compared to the post pandemic. Labor market is coming into better balance which is helping ease services ex housing inflation. GDP growth in Australia’s major trading partners was expected to ease in 2024. Domestically, inflation in Australia has moderated, but remains above target, with consumption growth subdued. L...

GBPUSD has a multiple H&S Formation with neckline support at 1.2528. Keep a close eye on break of neckline support. Complex H&S patterns are rare but potent. 

AUDUSD has broken out of the wedge in formation since 28 Dec 2023 and has broken the resistance seen at 0.6510. It is a text book wedge formation which is an important reversal pattern.  An important thing to bear in mind is that break out from downturn wedges may not immediately translate into breakaway moves and hence the action could be delayed.  The move out of the wedge, finds the first resistance at 0.6540 levels and support at 0.6520 and 0.6490 levels. Stop loss levels for me on this trade are below Thursday’s lows of 0.6477. Buying at 0.6520 and 0.6490 (average 0.6505) with stops below 0.6470 for a minimum target of 0.6610 offers good risk reward.

India's overall Trade Deficit was a positive surprise with data summarized below: Sharply higher services exports at $ 32.80 bn (18% higher mom) and lower merchandize imports (down 7% lower mom) saw trade deficit narrow to $ 740 mn.  If we can maintain the higher services exports and lower merchandize imports, we could end the year with an even lower current account deficit.  For the week ended 09 Feb 2024, FX reserves declined by $ 5.20 bn to $ 617 bn. 

 "At a given time in the markets, the most profitable traders are likely to be those that are best fit to the latest cycle. This does not happen too often with dentists or pianists - because of the nature of randomness." (The easiest way to get this is that in boom times, the highest returns often go to those that who take the most risk. That doesn't say anything about being their best investors" U.S Yields pushed higher through the week with bear flattening of 5 bps. Overnight SOFR Rates were stable at 5.31%. The German yields lagged behind the surge in U.S yields.  Yields High Low Close DoD ▲ Weekly Range US 2Y          4.72          4.45          4.65               16.00             27 US10Y   ...

For India, WPI rose 0.27% mom with Food masking the otherwise deceleration in prices of non food article / Fuel and Power / Manufactured Products. System Liquidity Deficit stood at Inr 224K crore and WACR traded at 6.69%.  The Governor of the Reserve Bank of India met with senior management from Public and Private Sector Banks, emphasizing vigilance in areas such as risk management, customer protection, and financial stability. Yield on IN10s opened lower at 7.10% after the 7.14% peak seen yesterday.  US yields pulled back sharply which could be attributed to the Fed Speakers dovish tone / lower Dec PPI revision and expectations of a softer PCE reading. S&P lifted off lows to close 0.90% higher on the day. The market is currently pricing in 97 bps of rate cuts into 2024.  Yields High Low Close DoD ▲ US 2Y          4.67      ...