Thursday, June 13, 2013

Indian currency crisis, Nifty major trend is down!

Bottom Line: It seems over past 1 week the movement of Nifty is dwarfed by the strong depreciation in INR.  

  INR pairs 

Currency worries:

The above charts are picked up from the currency research “The Forex Waves”. It needs little explanation and clearly shows the depreciation of INR in real sense. The sharp up moves in USDINR, GBPINR, EURINR and JPYINR clearly shows the vulnerability of Indian currency. This movement has happened despite of FII inflows, Dollar index weakening i.e. US Dollar falling against basket of currencies, Equity markets haven’t yet shown strong downtrend. If any of these parameters reverses then we have our doubts that even RBI intervention will be of much help. We are living in interesting times and the major trend for INR pairs has changed to upside. Short term consolidation or pull back is not ruled out. We have been on the right side of the trend as soon as USDINR broke above 54 levels few weeks back!

Nifty daily chart: 

Nifty 60 mins chart:
Wave Analysis:

In previous update we have mentioned, “In short, as long as prices move below 5850/5860 our favored view is negative and prices can move lower towards the immediate support of 5760/5750. Further, move below 5750 will accelerate the selling pressure.”

Nifty continued to move exactly as expected. Prices are failing to stay in positive territory and closed at 5760 levels. After a brief consolidation over last week the selloff has been very prominent in Midcap and Smallcap sectors.

It is normally observed that Equity markets lead the currency markets but this time it seems it is working the other way as shown in above currency charts. European markets are already showing strong reversal signs followed by Japanese and Chinese markets. It seems the world is now turning together but we will wait for more price confirmation to comment that the major top in world equity markets is in place.

As shown on daily and 60 mins chart, prices formed a classical Head & Shoulder distribution pattern and moved below the neckline. Bank Nifty was the first index to show this pattern and is leading the fall this time. Prices are currently moving in downward sloping red channel and the selling pressure looks to be accelerating. So far prices have taken out the previous up moves in faster time thus giving us early warning the trend has changed to downside.

Positional short positions can now use 5840 as stop loss on closing basis and ride the trend on downside. 5620 – 5640 is the level where we can have some supporting activity but we would refrain to come in path of strong downtrend and will observe how prices react from there. Any move below 5500 will be a strong confirmation that prices are headed towards 4700 levels!

In short, the trend continues to be negative for Indian markets as long as 5900 level is protected on upside.

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