Making Sense

Hey people..  It's been a long absence.. I have been blessed with a baby and that explains..  I will be resuming my blogging now..  Analysing RBI's money market operations since beginning March, we observe announcement of variable reverse repo auctions. RBI in essence has been trying to maintain liquidity at current repo rate and not let the LAF window operate near reverse repo rate as that straight away amounts to 100 bps of rate cut. Monetary Policy Review (MPR) shows that RBI is cognizant of the extremely high asset valuations of riskier assets such as equity and lower rated debt instruments due to ultra-loose monetary policy of AEs. Our vulnerability to a crash has increased. Many economists and traders have issued a warning in this regard, most recent being Jamie Dimon. Mohamed El-Erian concedes that most asset prices have been pushed to very elevated levels and he is now “mostly in cash”. Upside risks to INR depreciation have only increased. So I would look to initi...

Target of 60.00 was met. 60.00 is a very crucial level and a sustained and decisive break below 60.00 is needed for rupee to target 57.00. After making a low of 59.59, USDINR was constantly bid up today. We touched 9% on the 10Y benchmark yield and equity benchmarks closed marginally down. 9% yield on 10Y G-Sec does not bode well for the overall economy. With downside risks to CPI inflation, the return on deposits by banks will have to be increased to incentive depositors to put the savings in banks. The growth in aggregate deposits at 11.5 per cent in September 2013 lagged behind the credit growth of 15.10%. With liquidity being tight, deposit growth will have to play catch up for smoother credit off take. Plus if the cost of deposit rises then so does the cost of credit. Higher rates on credit coupled with sticky inflation, will only delay the revival in investment cycle. Announcement of OMOs will support the yields. However, any action is yet to come from RBI. In a scen...

While Rupee has been consolidating in the 60.80 – 61.40 range I have been questioning if appreciation beyond 60.50 levels is warranted and should one go long here. Had a couple of points in mind: 1.   When rupee had surged past 64 – 65 levels, Indian Exports had become cheaper compared to Chinese exports due to sharp depreciation of the INR. INR has since appreciated 11.25% and CNY has depreciated 3% in 2 months. This basically goes to show that Indian Exports will lose the competitiveness and the natural adjustment process associated with depreciation will be halted if rupee continues to appreciate. Is RBI comfortable with rupee below 60.00 levels when other emerging market currencies are depreciating? 2.     Looking at the Fx Reserves - Our FX Reserves are at $ 295.448 bn as on 07 th March 2014 from lows of $ 274.806 bn in Sep 13. The maximum Fx reserves held from data analysed since 2001 is $ 320.785 bn held in Sep 11. Can we say that RBI then can atlea...

On my post dated 10 November, 2013, I had shared my view to go long around 99.00 levels with a clear stop below 97 for a target of 108.15. We are currently trading @ 105.00 levels having already captured 6 big figure move. One may take profit on half the position and run the remaining for 107.00 levels. We may first test 106.00 and then retrace for 107.00 levels. P.S. I am a long 15 day leave and hence not updating frequently. Promise to be more regular !!

Exit polls showed BJP will win in four out of five states where election was held. Congress may retain Mizoram and lose Rajasthan and Delhi to BJP and BJP will continue to rule in MP and Chattisgarh. The exit poll results were welcomed by market with Nifty soaring 1.30% to 6241 levels and USDINR opening 20 ps lower and touching lows of 61.55 at open on sharp selling. With oil bids coming in we saw USDINR back to 61.88 levels but later closed at 61.76. A close below crucial 61.80 levels is a very significant price move and exposes downside target of 59.50. One can go short around 61.80 levels with stop loss above 62.40 for an initial target of 60.50 and then 59.50. I was discussing with a colleague just yesterday that all of a sudden everything seems to be positive on USDINR - CAD concerns have been greatly diminished, fiscal deficit likely to be contained at 4.80% (even though it is more of an accounting camouflage), people like you and me are finally seeing a drop in vegetable p...

Of note: 1.   India has received $32 billion under the special concessional swap windows for deposits by non-resident Indians and overseas foreign currency borrowings by banks 2.     Gross domestic product or GDP rose 4.8 per cent in July- September compared with 4.4 per cent in the previous quarter 3.      No urgency to include G-Secs into global indices, says Arvind Mayaram. "It would be interesting to be on the global indices, but it is not a matter which is emergent or so urgent that it would require an immediate decision" 4.   In another new development, India is preparing to lobby major trading partners including Japan, Iraq and Venezuela to accept rupee payments for some of their exports. 5.    November ’13 has seen net FII inflow of INR 2133 Crs 6.    Globally, China's PMI stood at 51.40 in November, exceeding expectations of a reading of 51.10. Week ahead H. HSBC Markit Manufacturing PMI (Monday) 2. ...

Supply Update in USD bn Vodafone Plc's proposal to increase its stake in Vodafone India 1.64 Plans by GoI to sell 5% stake in Coal India (likely in december)  1.5 Plans to divest residual stake in Hindustan Zinc and Balco 3.5 Plans to divest 4% stake in Power Grid + fresh issue 1.2

Sorry for the long gap people!! We did come in a striking distance of 64.00 on the USDINR chart and then saw a sharp retracements on Rajan's speech which allayed fears pertaining to domestic oil companies USD demand and on positive global environment. USD Index has retraced 38.20% fibbo level (80.56) of the upmove from 79.08 to 81.48. Interestingly, EUR is appreciating - however, I do not see  EURO above 1.3600 and JPY is depreciating and US 5yr swaps (ag 3m Libor) are at 1.39% crucial support. It'll be interesting to see where we head first - take out 1.3600 on the EURO or strong close on JPY above 100.25 and higher swaps. Broad USD strength wil give us a sense of future direction. Power Grid share sale likely to open on Dec 3 (78.70 cr shares on offer - fresh issue of 60.01 cr shares and divestment of 4% stake i.e. 18.69 cr shares). At tuesday's closing price of Rs. 95 per share it is likely to fetch the govt USD 1.20 bn). We will need to see how much of the inte...

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October payrolls came in at 204K much higher than expected. We saw a sharp plunge in major currencies against the USD and US bond prices.  Monday may again see buying pressure on USDINR and paying in forwards on strong US data. I had earlier shown on the USDINR chart, formation of a falling wedge (reversal pattern) - target for which is 64.00. With 30 - 40 % of the oil demand being moved to the market and broad USD strenght theme, we will see buying pressure on USDINR plus importers who were waiting for further appreciation on the USD would now rush to the market. Second, it also goes to show that authorities are comfortable with 61.00 - 63.00 levels on the USDINR. And increasingly we are seeing a consensus building in the market that USDINR is not likely to appreciate beyond 61.00 levels. So I still maintain my strategy of buying on dips. A number of FDI related flows are in the pipeline (Vodafone, Hindustan Zinc, Balco, Coal India, Eithihad - Jet deal) and anno...

On the USDJPY weekly chart, I see the formation of an ascending triangle and a clear break above 99.00 will see USDJPY attemt to test new highs with medium term target in sight at be 108.15. One can attempt to go long USDJPY with stop below 97.00.

Hope you guys had a great diwali!! Wish you luck in life and trading!! Wow!! After being confined to a narrow range, USDINR finally broke out on the upside and traded a high of 61.96 as it opened gap up on broad USD strength (EUR depreciated 2.45% against USD). Failure to break below 60.80 for an extended period of time is increasingly being seen as market getting more comfortable on trading longs.  Break out on the upside shows USD bullish momentum and may see rupee take out 62.50 - 62.75 in the short term. Demand / Supply update Vodafone Plc's proposal to increase its stake in Vodafone India may see an inflow of USD 1.64 bn (Rs. 10141 crs). Plans by GoI to sell 5% stake in Coal India (likely in november / december) may see inflows of USD 1.50 bn / 9226 Crs (5% of market cap of 184K Crs - crude approximation)) So we need to be watchful of news on Vodafone and government's disinvestment of Coal India and Hindustan Zinc + Balco (USD 3.50 bn) FII ac...

USDINR is range bound and appears to be breaking out of the upside resistance of the wedge. Last three consecutive sessions have seen doji candlestick pattern clearly indicating indecision after the long rally. 60.80 is also the 78.60% fibonacci retracement of the upmove from 58.64 to 68.80. A clear break below 60.80 is needed for INR bullish momentum to sustain.  Till such time, one can look to buy on dips for an immediate target of 62.50 with stop below 60.80. A couple of other thoughts to share  - one of the exporter companies' CFO mentioned that at 68 levels on the usdinr his order book saw a jump in new orders and exports became cheaper compared to even the chinese. So my sense is that authorities are going to limit sharp rupee appreciation as that disrupts the natural macro adjustment.  - buying on account of accumulation of forex reserves by RBI (as can be seen in a sharp jump of USD 3.395 bn in forex reserves to USD 281.12bn mainly on ac...

If we look at the USDINR chart there is a falling wedge formation which is in more cases than not a bullish reversal signal. Wedge trend line support is at 61.00 and resistance is at 62.11. Though we traded up to 61.00 we saw a sharp reversal in yesterday’s move. A similar pattern is to be seen in EURINR chart. USDSGD is near crucial 1.2400 levels. Interestingly, the USDINR forwards chart is also indicating further upside (both annualized and absolute figures). We see a major support at 440 ps on the 1Y forwards. This is further corroborated by higher than expected inflation wpi and cpi inflation data.  USD 5Y swaps are at major support level of 1.50%. With UST's 5Y and 10Y trading at 1.42% and 2.69% respectively for the past few trading sessions. We may either break lower from here or see a reversal ... My sense is that we may see a reversal going ahead..We’ll have to be patient, let the factors play out and watch. So interesting times lay ahead... (Really short on ...

One needs to be watchful of the USDINR moves. After closing the week at 61.38 on Oct 4, it has made higher lows on 2 consecutive sessions and closed near 61.80 levels. A close above the Oct 4 high at 61.95 will signal a partial retracement of the down move atleast upto 62.50. Light positioning is preferred here till we get further clarity on the direction.