Will Rupee - USDINR reverse back to 69? Impact on Stock Market?

Understanding impact of USDINR on stock market along with Elliott wave counts and inter-market analysis.

During the crucial juncture it becomes important to look at different asset classes such as USDINR and Indian Equity Markets which has high correlation during reversals. This correlation differs in magnitude but it can provide clues for the change in trend.

Understanding Correlation: Post making high at 8968 level, Nifty has showed sharp fall towards 8688 level and that too with big Gap down opening of more than 120 points on 12^th September 2016. On the other side USDINR has reversed from the important support of 66 and moved higher towards 67.10 level. In the month of February 2016Nifty made bottom at 6825 level whereas USDINR made top at 68.88 level. So, crucial areas are associated with reversal in close vicinity in both of these assets.

Is recent reversal in USDINR signaling towards important top in Equity Markets?

Apart from Correlation it also becomes vital to analyze the individual assets applying Elliott wave counts which can provide clue for the next move. Below we have shown daily chart of USDINR taken from “The Forex Waves Short Term Update”.

USDINR Daily chart spot:

(Part of research taken from 12th September 2016)

Wave Analysis:

In the last trading session USDINR bounced back and broke the pivot resistance of 66.80 (fut) levels suggesting that bulls are coming in action since a couple of days.

The daily chart of USDINR shows that currently wave…. is ongoing which is subdividing further but still the previous pivot low of 66.00 (fut) levels is intact. From medium term perspective only a move below the same will result into deeper correction in the form of wave iv. However looking at the smaller picture we can get a clear indication of the ongoing trend.

It seems that the action is this currency pair is about to start and we can see movement back above the channel. Reversal in currency along with Equities cannot be mere coincidence as we have seen this happening many times before as well.

Keeping a tab on cross assets can sometime provide vital clues for equity markets. To know where is Nifty headed along with currency outlook get access to “The Financial Waves short term update” along with “The Forex Waves Short Term Update”which covers USDINR, EURINR, JPYINR and GBPINR with important levels.

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Sensex impact of Rupee, MAT, Chinese IPO, fresh triggers awaited!

The below is the English transcript of article by Ashish Kyal, CMT Director of Waves Strategy Advisors in Economic Times section of Navbharat Times

Indian equity market has been struggling over past few weeks. Intraday volatility has increased given the news flow and data such as WPI figures, Industrial growth and worry about domestic demand pick up. Sensex managed to close at 27324 with some gains on Friday but has so far not taken out the upside resistance of 27600 which is important for short term positive confirmation. On downside low at 26400 is very important support. We can expect a range bound movement in current week and only a break above 27600 will resume the uptrend.

Midcap and Smallcap sectors: Selling seen over past few weeks was more prominent in Midcap and Smallcap sectors which have reached over valuation area. Pharma sector has also corrected sharply from the highs as a few of the stocks were demanding very high PE ratio which was not justified. Banking sector on the other hand has been consolidating within a range and fresh clues are awaited for future trend to emerge.

RBI steps will be crucial: WPI inflation data released last week has dropped to record low levels of -2.65%. This has raised expectations that RBI can start focusing on growth and cut the key policy rate in its upcoming monetary meeting to be held on June 2. RBI has cut interest rate twice this year and after the negative WPI figure and poor industrial growth, pressure will be build on them to take further positive steps which will be important for direction of interest sensitive stocks.

Indian Rupee: Indian Rupee had been under pressure over past few weeks and has touched the level above 64 against USD few days back. Further move above 64.50 will be a concern for RBI as Mr. Rajan has managed to reduce the volatility in Indian Rupee after taking over as governor. Move above 64.50 can trigger more USD demand thereby putting pressure on the economy.

Minimum Alternate tax (MAT): Uncertainty over MAT for years prior to April 2015 has made foreign investors nervous and has reduced confidence in existing government. Decision on MAT is going to be important to restore back confidence into Indian government and their reform policies.

China IPOs impact: Chinese equity market has been in news after as many as 20 companies have been planning to issue IPOs. It is believed that this will impact other emerging equity markets including India as Foreign institutions will probably move out of other equity markets and will start putting money in Chinese IPO that has given promising returns over past year.

Week ahead: Sensex has been moving sharply over past few days but within a range. This week the support is at 26400 and upside resistance at 27600. We can expect consolidation between this unless more clarity is obtained from the above fundamental data. From technical perspective prices have moved below 20 weeks Moving average which represents medium term direction. Investors should therefore remain cautious and wait for clear breakout!

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Sensex: Break above 28800 is important to resume the uptrend! Economic times section of Navbharat Times

The below is the English transcript of article by Ashish Kyal, CMT Director of Waves Strategy Advisors in Economic Times section of Navbharat Times.

Sensex has continued to form new monthly highs and touched the level of 28822 by end of November 2014. As long as prices manage to protect the low of prior month on closing basis the medium term trend will remain positive. November month did not see any strong momentum. Currently prices closed at 28458 which is only 45 points above the level seen in start of November. This shows that some strength is reducing on upside and one should invest only in selective stocks with lower “Price to Earning” multiples and good management.

NSE Advance decline line is a simple technical indicator which shows the overall breadth of the market. Even when Sensex is touching new highs this indicator is moving lower indicating more number of stocks were closing negative as compared to advancing stocks. This is known as negative divergence and it shows only selective number of stocks is taking index higher which are not a healthy sign.

RBI credit policy: RBI kept the key policy rates including repo rate unchanged in the meeting held on2^nd December 2014. RBI governor Raghuram Rajan said change in monetary policy stance now would be premature, adding RBI may change stance in early 2015 if inflation falls to 6 percent. This shows that RBI focus still remains on curbing down inflation first even if the overall economic growth might be slow.

Indian Rupee has continued to show relative outperformance since September 2013. Even when US Dollar has rallied sharply over past few months USDINR has managed to trade within the range and protected 63 levels on upside. Indian Rupee has been one of the best performing Asian currencies so far. The important support on USDINR is now at 59.50 and resistance is near 63.Break of either of these levels will start a strong trending move in that direction

Commodity prices: Commodity prices have continued to correct over past few months. Crude Oil touched the lowest level seen previously during 2009. This will help to reduce the pressure on India import bills. However, falling Crude prices is more driven by reduction in Global demand. This will put pressure on companies involved in production, exploration and refinement of Crude oil like Cairn India,Aban offshore.

Week ahead: In a nutshell, looking at the overall breadth, momentum and sector participation we think that the risk has increased for fresh investments at current levels. However, for change of trend there has been no price confirmation and unless we see a close below 27700 levels the medium term trend will remain positive. Another important technical indicator that can be used to understand the direction of market is 10 weeks Moving average. The support as per this average is near 27700 on downside. In current week, move above November high near 28800 is important for uptrend to resume with support of 27700!

Gold, Currency, Bank Nifty view by Ashish Kyal in Economic Times Section of Navbharat Times

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Indian currency worse performing among BRIC nations

Wishing you all a very Happy New Year 2014!

The below is the English transcript of article by Ashish Kyal, CMT Director of Waves Strategy Advisors in Economic Times section of Navbharat Times.

Rupee outlook: Indian Currency is one of the worst performing as it is trading way beyond the top of 2009 made near 51.50 levels. Many of the other Asian currencies still have managed to protect the highs of 2009 where as USDINR made life time high near 69 in August 2013.

If we see from the bottom of 2008, then Indian currency has depreciated almost 58% from the lows of 39 to current levels. Brazilian Real has depreciated 34% from the lows of 1.55, RussianRouble depreciated by almost 30% from the lows of the 23 made in 2008.

Our outlook on currency is that Indian rupee can continue to deprecate and move towards 65 – 66 levels over next few months with 59 as very important level on downside.

Outlook on Gold: Introduction of Philadelphia Gold/Silver Index:It is the index which is made up of 16 mining companies worldwide that are into the business of mining of Gold and Silver. When this index moves higher, it shows that these companies are doing well and generating profits. However since 2010 onwards the index showed strong down performance and has now reached near the levels of 2009. As Equity indices lead Commodity prices we can conclude that the prices of Gold and Silver should continue to move lower atleast over next few months before we can see any meaningful bounce back.

Over short term, Indian Gold has an important support of 28200 and strong resistance of 28800 levels. Range bound movement can be expected in this week and break below 28000 will continue the downtrend.

Bank Nifty direction: Bank Nifty made a very important high at 12200 on 9^th December 2013. On18^th December RBI announced no hike in repo rates and Bank Nifty made a high of 11570 on same day. An interesting thing is that even after 6 trading sessions after RBI announcement of no rate hike Bank Nifty has failed to move above the highs made on that day and is still trading at 11460 levels as of Friday’s close. This is indicating inherent weakness in this sector. One should avoid going long on Banking sector this week as long as 12000 level is intact on upside.

Sensex past week: In last week Sensex moved up exactly as expected. However the movement was very less in Indian markets. Sensex moved between 21000 and 21235 levels. This is a movement of only 235 points in entire week. Many would argue for the vacation effect on Indian markets but during this same period we have seen strong uptrend has continued in developed equity markets with DJIA hitting life time highs, Nikkei hitting 6 year high. So Indian markets are relatively underperforming and looks to be on a vacation mode.

Current outlook: This week Sensex can have a consolidation between 20900 and 21400 levels. Since the low of 20600 we are seeing sectors or stocks contributing to the up move are changing daily. This is reflecting a day trading environment right now rather than positional trading. One should accordingly trade and avoid positional trading till clear trend emerges confirmation of which will be obtained only above 21500 with strong momentum! 

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Sensex registered biggest down fall since 2009 but Why blaming FED, Rupee, FIIs???

Sensex registered one of the biggest falls since 2009, 18300 will be crucial on downside.

Sensex had a Gap down opening of around 70 points on Friday and prices failed to take any support near important levels. The selloff intensified during the 2^nd half of the day and Sensex lost exorbitant 770 points or almost 4% by the day end. This was real carnage seen across the Indian equity market. BSE Midcap and Smallcap indices lost around 2.7% and 2.15%. The advance decline ratio deteriorated with 713 advancing against more than 1600 declines. However, this is still not extreme breadth figures we have seen but nevertheless it is still very poor. Negative closing of such severity was last seen on 6^th July 2009 when Sensex registered a fall of 870 points. Prior to that selloff of such magnitude was seen in bear market of 2008. Many people are now realizing the bear market in India after index has shown its weakness but we have said this before as well that Indian equity market is already in a big bear trend since many months as Advance decline line has constantly deteriorated. Sensex is now only witnessing the selling pressure which has been happening in broader market for quite sometime.

Sensex daily chart: 

USDINR future hourly chart:

There are many logical explanations that are coming after the severe fall registered on Friday which looks logical on face value but are unjustified. Without any major event during the day, Rupee has been facing all the blames followed by US FED and rumors of FIIs moving out of India.

Blaming the Rupee?

USDINR (futures) made a high of 62.18 on Friday against registered 61.79 on 8^th July. On 6^th August itself INR touched 62.12. Friday’s depreciation in currency futures was mere 6 paisa above 6^th August and 39 paisa above the high of 8^th July. I am astonished to see without any other event plausible to blame it is the Rupee that is facing all the heat! Also there can be confusion in the causality here. It was previously believed that fund flow into Indian equity market supports Rupee but this time Rupee is said to be the reason for equity selloff. I do acknowledge the fact that INR weakness makes it unfavorable environment but it is not the sole reason to blame for equity selloff.

If Rupee depreciation is the prima facie reason for weak equity markets then food for thought is why did Sensex moved from the lows of 7700 in October 2008 to the level of 20350 just few weeks back and Rupee also moved from 39 level to 62. The counter argument for the INR critics can be that it has moved way beyond expected levels impacting CAD but who decides what is extreme!!!

Blaming FIIs selling?

 FIIs have been net buyers to the extent of $260 mm so far this month. Now this needs little explanation. FIIs infact sold more than a billion dollar in June and July individually!

Blaming the FED?

This is a very incorrect excuse. US markets are still near their life time highs and infact, DJIA touched all time high on August 2^nd which is well after FED first hinted about scale back on 22^nd May 2013. The stimulus by US, for US, looks to be impacting India and its currency worse than any other emerging markets. Infact, if not US then China should be much more worried about the scale back action, again only hinted!

Sensex: What is next from here?

The strong close of Tuesday and Wednesday became insignificant after the strong selloff seen on Friday. 1 day of bar has retraced past 4 days of rally. This indicates that the up move from 18550 to 19390 was only a minor pullback. The short term support is now at 18300 which is the level but this time ………….

 Banking sector is one of the worst performing sectors but even if the valuations appear cheap one has to wait for some stability before getting into value buying and this strategy has not yielded good returns so far in 2013!

A part of the above article is published in today’s morning Economic Times section of Navbharat Times by Ashish Kyal, CMT. Also in today’s morning daily research report “The Financial Waves Short term Update” we have mentioned important levels on Nifty along with the probable Elliott wave counts. For more information write to us at helpdesk@wavesstrategy.com or call on +91 22 28831358 / +91 9920422202 or visit www.wavesstrategy.com

Useful for: Trading using technicals, Why is everyone blaming FED, Rupee, FIIs  

Related to: FED, Rupee, INR, USDINR, FIIs, Sensex, Nifty, Navbharat Times