Tuesday, December 1, 2015

Equity currency correlation, USDINR movement as per path shown in monthly update..!!

Correlation between Equity and Currency: Indian Equity market has continued to be under pressure over past few months. USDINR has high correlation with Equity markets during major turning juncture. However, magnitude of this correlation varies. Also the correlation depends on the period of trend. Over long term USDINR and Nifty both have moved towards unchartered territories. However, over medium to short term one can see that the reversal in Nifty is also associated with reversal in currency pair. So continued selling pressure over next few weeks in Equities will keep the trend on upside for USDINR.

Dollar showed its appreciation against Rupee which was anticipated well in advance with the help of Elliott wave theory and other technical tools and part of the research is shown below.

USDINR daily chart spot: (Anticipated on 5th November 2015)

USDINR daily chart spot: (Happened till now)

For USDINR, in the previous monthly update we mentioned that, “short term appreciation is possible in INR for move towards 64.30 levels and then this pair should depreciate again and cross 67 mark.”  

USDINR has been moving in lines with our expectations. Prices showed appreciation towards 64.62 (spot) level and protected our mentioned level of 64.30. Post that prices have been depreciating and trading at 65.75 level.

Medium term outlook on USDINR: The weekly chart of USDINR shows that since mid of 2011 this currency pair has been moving higher in form of intermediate wave C. Within this, minor wave iv has completed at 58.20 (spot) levels and since then minor wave v has been running its course on upside. The internal structure of wave v has been corrective in nature and thus it indicates that Ending Diagonal Pattern is in formation. Nevertheless, as long as 63.50 (spot) is intact on downside, medium term trend for USDINR remains on upside i.e. INR should continue to depreciate over next few weeks.

Moving average: Recently prices have bounced back from the channel support and have been protecting the 100 weeks Exponential moving average since second half of 2014. From last 2 weeks prices have been protecting the prior bars low on closing basis and giving positive close.  Hence channel support, Exponential moving average of 100 weeks and weekly bar formation indicates that short term appreciation of INR against Dollar has completed and now depreciation can continue in the coming weeks.

In short, weakness in Indian Equity Market along with wave counts and channel support indicates that USDINR can move higher towards 67 mark in the coming weeks. As long as 63.50 (spot) is intact on downside, medium term trend for this currency pair will remain on upside.  

Happened: USDINR moved in lines with our expectation and has made high of 66.90 (spot) recently. What should we expect now?

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