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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