Indian rupee

After spending almost 3 months consolidating in an unusual “low volatility” trading range, the dollar may be headed for some swift moves ahead. The RSI indicator (in pink) given in the lower ender of the chart pasted above has broken the falling trend line to the upside. This kind of a breakout in an indicator presages that price too will break out in the same direction – meaning $/inr will break out of the triangle pattern towards 47.50
47.50 is critical as a sustained breach of this level will see the rupee trip all the way towards 48.80-49.
The MACD indicator also supports the view that momentum could be building in favor of the dollar.

DOW JONES INDUSTRIAL AVERAGE

The US benchmark index-Dow Jones – one of the best barometers of business confidence is showing signs of topping.
The chart pasted above reflects that the multi month rally that began in March 2009 is losing steam as a clear sense of exhaustion seems to be settling in. Price action has formed a classic “head and shoulders” pattern and this in itself is one of the most reliable topping patterns in charting analysis. This is significant because we could see the Dow head towards sub 8000 levels by March 2011.
This in turn would imply that the US economy would likely face renewed headwinds and thus be weaker in the next FY: 2011-12 , causing risk aversion and volatility to soar . If the past is anything to go by, we should see the dollar rise in response.

Market Outlook

EURO The euro may be nearing the end of its corrective bounce – a near 11 cent rally from its recent lows of 1.1876. Euro gains from hereon are likely to be limited by the resistance zone at 1.31-1.3170.
In any case, unless it manages sustain a convincing breach above 1.3326, the bias would still be tilted towards euro moving lower again.
The region between 1.2570 to 1.2250 would be the likely testing zone after this up-move is over.(medium term target)
The long term target (if 1.3326 is not breached) would be 1.1640
STERLING
The outlook for the pound is quite mixed as it hovers about the 200 day EMA.
The currency faces a strong resistance zone between 1.53 and 1.55, failing to breach which could trigger another round of selling towards 1.4750-1.48. USD/INR
The currency pair is seen consolidating in a tight range and since any consolidation is a precursor to a breakout in volatility, the dollar may be head for some volatile swings going forth.

Consistently trading above multiple moving averages suggests that while some correction towards 46.50 support cannot be ruled out, so long as 46.30 is held, the bias would be in favour of a stronger dollar.
A breach above 47.50 would trigger a move towards 48.50-48.80 SENSEX Indian equities look very ripe for a good corrective fall as price action shown in the chart above is about forming a triple top pattern which typically is a bearish alert.
Inability to trade above 18000 is in itself portending a break below the trend-line (in blue) .A convincing breach below 16700 would confirm the negative view and could take the index all the way down to 14000 levels.

Is it time to Buy the most battered currency …??

With sentiment around the European major bleakest since the time the French and Dutch voted a historic “No” to the EU constitution way back in May 2005, it just may be time to buy the euro as the environment seems perfectly ripe for a surprise rally in the currency pair.



The four hourly chart above clearly indicates divergences, suggesting that the euro may be gearing itself for a relief rally.

From an Elliot perspective the wave counts also suggest that a corrective wave may be around the corner .



If the above wave - count is right and the wave (3) is done with, then euro may be gearing itself for a the 4th wave corrective rally, which in turn can be expected to unfold in a 3 wave fashion. The target zone could be anywhere between 1.2775-1.2990.
Post this corrective bounce, euro could fall to a 1.16 to complete the 5 wave sequence Therefore, this rally can be used to sell euros for the short term.

Has the rally run its course...?

Just when the dark memories of Lehman began fading into a so called “abyss of no return”, I’m impelled to wonder (notwithstanding the breathtaking rally mustered by the DOW ), if the next BIG Man named Goldman isn’t taking on the baton from where its former counterparts left….

……….To take Uncle Sam to revisit the troughs seen in economic activity not so long ago through a prolonged process of what may be called a ‘double-dip’ recession.
Take a look at the chart below.




The Dow Jones, from its lows in March 2009 has retraced a whopping 60% of all losses seen from the peak at 14,000. And this level assumes significance simply because it corresponds to the 61.8% Fibonacci retracement level.
While it may seem a no-brainer to expect a good correction in the Dow from here especially given the relentless rally and massively overbought levels that it has been trading at, a closer look at the rally suggests that the rally has unfolded in a kind of 3 wave pattern.
And this has serious implications in that, if the Dow does not manage to hold above the 61.8% Fibo resistance, then the path of least resistance for the US stock markets would be down for an extended period. That is to say that what we just witnessed the whole of last year – a surging Dow was infact nothing but a BEAR in a bull’s clothing….
Since a 3-wave pattern is typical of a corrective phase, the original trend (namely down) will resume in the Dow Jones. I’ve pasted the price action in euro to highlight the typical nature of a 3 wave pattern.




(As can be seen the euro plunged initially, and then managed to recover in a 3 wave fashion which finally resolved into the previous trend again.)

If the above is true then while this topping of the markets unfold, US will continue to print upside surprises in economic data, hoodwinking many if not most to believe and be convinced that the economic recovery is on sure-footing. And this in itself is the danger because even the last time around, while the markets numerically topped in Oct 2008, the impact on the real economy was felt much later by Feb –March 2009.
If this is anything to go by, then the US economy will most likely be weaker 7-10 months down the line with another round of bankruptcies and collapses to its credit. Conserving cash would be prudent as typically this asset tends to reign as king in such times.

Market outlook

EURO





As can be seen, euro’s decline has clearly traced out an Elliot 5 wave pattern .If the above reading is right, then euro could be bracing itself for a 3 wave corrective move – a sharp rally that could take it towards 1.4060. In any case the corrective rally is unlikely to extend above 1.4160-1.4250.


Pound




Closely following its European counterpart, the sterling may also come in for a relief rally that could potentially see the pair back towards 1.5950 to 1.6060.

Since the overall bias is still tilted towards bearishness, gains are unlikely to extend above 1.6170 giving opportunities to sell the pound there for the next thrust down towards 1.49-1.50

Only a break above 1.6350 will negate the above bearish view.

Dollar Index





The dollar index is likely to take a breather after the much awaited rally. Can expect the index to fall back towards 78 -78.50, but is unlikely to fall below this level. The 200 day (black line) and the 100 day (green line) Averages are expected to lend terrific support for the index and usher in another strong bounce for the index.

This impending correction in the dollar index is likely to be accompanied by a rise in risky assets. One can expect Indian Equities - Sensex to retest 17,100 before correcting down again. Gold also could evince renewed interest during this period of dollar correction towards 78.50.


Indian Rupee





The dollar/ rupee pair tested the critical 46.70 – 46.80 territory and has currently slipped below 46.30 again. While a test back to the support territory of 46 is imminent, the outlook is slightly mixed, with budget around the corner and therefore only a break below 45.96 should invite fresh re-entry of selling.

Sustained trading above the falling black trendline would be needed to signal that the dollar is finally out of the woods.

Market Outlook

Sensitive Index



The much awaited decline in the Sensex has finally occurred. As can be seen, the entire uptrend that started from March 2009 stands violated. This is not to rule out spikes, but any spikes from here are likely to be limited initially by the 100 day EMA (purple) (currently at 16,604) and likely to take further resistance at 17,200. In any case, price action is not likely to immediately move above the trendline which it broke.


This corrective move isn’t yet over and should resume in a 3 wave sequence – which means any rise could pave the way for a deeper decline towards 14,000 first and then a 12,800. The chart below shows the Fibonacci retracement levels. The 50% retracement level is popularly known for being an 'inviting testing ground'



These levels therefore, will need to be tested before one can clearly say that the corrective decline is over. So for the short term investor, the strategy should tilt towards “sell upon rises “rather than “buy upon dips “for the short to medium term.

For those looking to invest for far term, the decline towards 12,600-13,000 can be seen as reasonable entry levels for a 2-3 year timeframe.

USD/INR




Closer home to our domestic currency, the obvious/ instinctive conclusion or expectation would be to see the rupee weaken in the face of stock market declines.

However, the rupee may still hoodwink the majority and manifest its weakness with a lag or delay. In any event, a break above the falling trendline (currently at 46.80-47) would be needed to signal that the dollar is ready to stamp it’s surreal strength against the rupee. Until then, it would be safe to cautiously sell upon rises for nothing more than 6 to 8 months, notwithstanding the plausible negative MTM’s that may begin to rear its ugly face.

Partly because the kind of divergences playing out in the MACD suggests that the current bout of rupee strength may not last indefinitely throughout the year. In all likelihood, there will be one massive show of strength by the dollar probably in the second half of 2010.


GOLD




Gold currently stands at a critical juncture – a few dollars short of the rising support trendline that has withstood downside attacks throughout the upside seen since late Nov 2008. Gold faces an extremely critical challenge of 1070-1080 – for any break below this support region would see dollar bulls charging in causing gold to decline to 970 to 990.

It is likely, given the oversold parameters on the dailies, that gold may evince some interest at the current levels and move towards 1120-1130. But unless, it breaks above 1150 convincingly, the bearish undertone may resume taking gold below the trendline.


OIL



The fortunes of the Middle east may be coming to an end for the medium term. Oil has made an interesting development in the past couple of months.

In the above chart, one can see that after breaking below the first blue trendline, price rallied back above the trendline swiftly to confound many an oil bear. However, it whipsawed about this line and currently stands at 74.

Oil may infact see a rally in the very short term that may not extend too much beyond 80-82. After which, in all probability, oil in the medium term is more likely to be headed down than up- thanks to the divergences displayed by MACD. Break below 68-70 support would serve to cement the medium term bearish expectation.

Market Outlook

Dollar - Rupee



The rupee’s resurgent rise in the New Year came as a nasty surprise given the overall dollar bullish undertone overseas – it’s breach below 45.80 - 46 is indeed an important development as we sit to reassess the trajectory of the rupee going forward.

As one may notice in the chart, price has been forming newer lows (purple line), as it remained well below the falling trendline (black line). So long as the purple line stays below the black falling trendline, any strength in the dollar would meet with selling pressures.

However, any rally from here that stages a convincing breach above the falling trendline (now at 47.10) would spell an important alert – that of a reversal in the falling trend of the dollar. And in such a case the dollar would rise to nothing less than a 49.00

But so long as the purple line (price) keeps holding below the trendline, it would be prudent from a risk management perspective to sell upon rises. In other words, if the dollar does not cross the first horizontal dotted line (at 47), it open’s the possibility of a test of the third dotted horizontal line, namely 44.10.

So given these contrasting possibilities, it may seem pretty much a Catch 22 scenario of “Doomed if I sell, and Damned if I Don’t”…..

My sense is that we could play safe for the medium term by resorting to aggressive hedging upto say August –Sept 2010 to guard ourselves against the risk of a 44. Beyond August – Sept 2010, hedges could get concentrated in the plain vanila space for the simple reason of minimizing adverse MTM’s and participating in any dollar strength that may materialize as the year progresses. Because given the timeframe, namely between now and August 2010, one cannot rule out a massive comeback in the dollar either.

My personal view is that rupee’s strength could be limited to the near to medium term and after a possible move towards 44 or below, a sharp rise (like that seen in 2005 and 2007 ) in the dollar could materialize that could take the dollar back to 48.60 - 49 again. Conservatively speaking, the likely range of the rupee in 2010 could be 43 to 49.50.



DOW JONES



At the risk of sounding like a broken record, I believe that the recovery staged by the Dow Jones Industrial average may be close its end and that the fundamental trend of the DOW is still down.

As the index approaches a key Fibonacci retracement level as shown by the blue horizontal line, the US markets may be in what can be called an “ exhaustion rally ” - one that typically precedes major turns.

Key bearish divergences – in MACD and RSI are playing out – as can be seen, with every new high made by the DOW, the indicators – ( MACD & RSI ) aren’t making corresponding new highs.


If one were to trace the rally that started off in March 2009 in the markets, the economy has started showing signs of recovery now ( after nearly a 9 month lag ). If the above view of a bearish DOW materializes, then the US economy in the next 9 to 10 months is likely to be slower than what it is now.

It may be worthwhile to keep our revenues from US clients covered through a credit risk cover just to be guarded against a worse case scenario of bankruptcies and defaults.

The New McKenna’s gold Rush

The glitter of gold, or rather its irrevocable sheen has been the universal theme stretching across market headlines and analyst reports in recent months. Talks of an increasing number of central banks –from the tiny island of Mauritius to the Indian tiger and the Asian Dragon – diversifying and upping the percentage of reserves held as gold brings to the forefront an important question -
Are we at the threshold of a crisis of confidence in the paper standard and if so, is the world headed back to the once-abandoned Gold standard?

Before we begin to logically reason out this spurt of interest in gold at $1000+ than at $750 at the beginning of the year, would like to throw some light on certain facts:

While the diversification to gold by central banks gets continually highlighted, is the financial world missing out an important truth ?– that, an international organization which oversees the global financial system with a particular eye on exchange rates and balance of payments of nations a.k.a. IMF should be doing just the opposite - selling its gold.

Nay-sayers may still debunk the above reasoning on the ground that the IMF continues to be one of the largest official holders of gold in the world and therefore its gold sales of 403 metric tones merely represents 13% of its total gold holdings. Even if they were true, isn’t it still a no-brainer that for every buyer, there ought to be a seller? .And since this is applicable even to commodities, if the whole world is suddenly evincing extraordinary interest in gold and buying it (and defacto selling dollar ), who exactly is selling that much to meet this voracious world demand.

The most often heard rationalization for the recent rise is that markets are sniffing a real threat of inflation or very simply a loss of purchasing power in the dollar. If this premise was true, then I believe that only a completely irrational being or very simply a fool would be out there selling his gold for the rest of the world to enjoy.

Fully convinced of the maxim that the primary job of the markets is to fool the maximum number of people the maximum possible number of times, I’m led to believe that this new rush for gold may infact fizzle out into a kind of bubble seen in oil just last year. $1300 is still reasonably probable, but should infact pave the way for a reversal in the fortunes of gold for atleast 1-1.5 years and to this end, a break below 1030 would serve as a key signal.

And why so?

The world at large, Asia in particular is known for its large holdings of US debt. While on one hand, talks are rife with them diversifying out of dollar, there is no denying of the fact that the appetite for US debt continues to grow, albeit at a slower pace

I often wonder if Asia is so blind so as to finance the US’s insatiable demand for credit, if it knew fully well that there could be a potential default? Or, is it so foolish to accumulate dollars, only to later diversify into something that is non dollar, fully taking on the cost of exchange risk.

Since the scenario of a sovereign default by the US is by no means inconceivable, in my opinion the dollar could actually rise in the face of a default before it falls.

Simply because before America defaults on its debt, it would first buy time in the form of a postponement of repayment commitments and this in itself could trigger a scramble for dollars amongst its creditors/world .This in turn should lead to a spectacular round strength in the dollar, for which creditor before deciding to write off a bad debt would not first demand it ? And since the debt is denominated in dollars, the dollar should rise and with it ideally bring down all commodities, gold in particular, and non dollar currencies, except the yen.



Finally let me leave you with one random wild thought: Namely, wouldn’t it actually be in the interests of the holders of dollar debt to see the dollar rise (and euro fall) to say, a level close to parity ( 1 Euro =1 $ ) as this would only facilitate their diversification efforts at virtually zero market risk, before allowing the dollar to fall freely?

May seem far-fetched at this point, that the euro should fall to a parity before being able to command 2 dollars in exchange. But given the enormity of the stakes involved, it may not be an impossibility either.

Surprising, that an age old classic blockbuster - McKenna’s Gold should be teaching a very valid lesson – that, the mad rush for gold could be killing. Eventually, only a few make it big in this game.


Think about it.

The Buck Stops Here….??!

In a week that had the dollar bears falling in line to hammer the last nail on the dollar’s coffin, the greenback sported a rebound that was impressive to say the least…. and all of it apparently over an employment report that showed a slight dip in the jobs lost.

If one were to refer to the recent catalog of market responses to events, “good news” in the US typically went hand in hand with risky assets soaring and the dollar falling. However, this time markets chose to focus on a different theme – and (intelligently?) established a logical re-linking of good news with a stronger dollar. So much for market fundamentals!

The key question is whether this is just a blip in the larger scheme of dollar weakness or is it something more radical in terms of sentiment shift in favour of the dollar.

A peek into the chart of price movements reveals two defining developments –one in the EURO/USD and the other in its virtual mirror reflection, namely the dollar index.

EURO/$




As can be seen, a multi month uptrend spanning from March 2009 stands violated. If this is confirmed with 2 more days close below the trendline, it could have serious implications; given the market’s maxim – longer a trend is in force, stronger will be the price action upon a breach of the underlying trend.

Any pullbacks are likely to be limited by the support turned resistance trendline, currently at 1.4950-1.50, ushering fresh selling pressures towards 1.4625 initially and 1.4430 eventually.

$ index



We’ve been of the view for sometime now, that the current (probable) C wave could end anywhere between 73 - 74 territory. The breakout that can be seen in the $ index chart reinforces the view that the two converging trend lines culminating into an ending diagonal pattern – could take the dollar index in the medium term (over the next 6-8 months) towards 80 - 81.

That said, the above view will hold only if the current breakout is not a false whipsaw – as typically December is notorious for its volatile swings – courtesy, thin markets.

USD/INR




With 46 territory offering formidable support for the dollar - 4 times in a row now, the rupee could trip all the way to the trendline resistance at 47.50, especially of 46.75 gives way on a closing basis.

Break of 47.50-47.60 would however be critical in defining a complete trend reversal of the down move from late March 2009.

Sensitive Index

Re-assessing the Sensitive Index from a wave perspective reveals that the rise from the March lows of sub 8000 has progressed in a 5 wave sequence. If the above wave count is right, then the impulse wave which tracks the direction of the larger trend may have possibly given over at 17530, paving way for the 3 wave corrective A-B-C decline to complete a typical 8 wave sequence. The A and B sub-wave seems to have been done, which leaves the final leg, C corrective pending.


The nature of the corrective pattern could emerge as a “zigzag” or a “flat” - the former retracing a lot more of the previous 5 wave than a simple flat.

While much of the investor class would be better disposed with a flat corrective, the odds may be stacked in favour of a ‘zigzag’ type – for the simple reason, there is also a gap which the market will need to fill, namely the ‘gapped up’ price move after the UPA thumped majority. While some pain is in store in the near term, the good news is that when this corrective wave has given over, it may be the next Big opportunity as the next 5 wave impulse sequence of a larger degree may be about to begin which has the potency of taking the index to new highs above 21000.


The only hitch will be if the index falls below the start of the wave 1 ( i.e. below 8000 again ) for then, the above count would stand negated.

Currency Outlook- 2nd November 2009

Euro



The European major has nicely corrected towards the rising medium term trendline – just below 1.47. In all likelihood, the euro will witness a bounce this week from the current levels back towards 1.4950-1.5020, which puts the very short term preferred strategy towards euro buys with tights stops below 1.4625.

That said, the impending rally may not extend too much beyond 1.5050 from a macro picture - even if it does extend it would only offer opportunities for shorting the pair or exiting out of current longs as a test of 1.4430 seems reasonable after the current rally.

STERLING

Since the last report, pound has marked gains although missing our target of 1.6740 by a cent. There is no reason to alter our bullish view yet, as it continues to stay bid above 1.61-1.62.


From an Elliot perspective, the 4th wave has probably concluded putting the odds for a shoot towards 1.74-1.75 to complete the 5 wave sequence in the coming weeks. Break above 1.6740 will confirm this bullish count.

Preferred Strategy: Longs with stops below 1.6150


Dollar/ Rupee




The dollar as expected retraced into the mid 47 before turning again. As noted in the last report, so long as price action remains capped below the falling trendline resistance, now at 48, bias would be in favour of the Indian unit with rallies offering opportunities to short the dollar for a move again towards 45.50 - 46.


Dollar Index


In the current week, we could see the dollar index dip again towards 74.15 from the current 76.20.



However, from an Elliot (macro) perspective, the dollar index appears to be in the last wave , namely the C wave in the broader A-B –C corrective sequence. If this wave count is true, the corrective C wave should ideally terminate around 73-74 and head for a multi week rally.

A convincing breach above the pink line - (50 day EMA) would be needed to confirm this reversal.

Pound



As the dust settles after a roller coaster surprise in the markets particularly the Indian currency market, it’s time again to reassess our views on the various currencies.

I begin with the Queen’s currency, for the simple reason that chart developments are commanding a greater sense of clarity for this pair than any other.

As can be seen from the chart above, there is a reversal bar confirmation in the dailies. Also the RSI (green line at the bottom) has broken a downtrend. This breakout in the RSI presages a similar breakout in the price (GBP) above the falling trendline –In which case we could see a move towards 1.6740 shortly.

From an Elliot wave perspective, the fall from 1.70 to 1.57 appears to have unfolded in a 3 wave fashion .And since a 3 waver is typical of a corrective price action, we could see the pound 5 wave rally in the medium term- possibly even beyond 1.70



EURO



Taking the (dollar) bull by its horns, the euro trounced it to multi month lows. While the larger trend is yet to show clear signs of a reversal, the rally could take a temporary breather .The divergence on the MACD (dailies) is suggestive of a waning of upside momentum for the euro.

Holding below 1.4980 could trigger an unwinding of euro longs, putting the target at 1.46-1.4630.

RUPEE



The rupee hogged much of the limelight gaining 5% in just about a fortnight. Breach below 46.70 is a critical development as this support was key in withstanding selling pressures for nearly 4 consecutive attacks, right from late November last year.

A significant breakthrough for the rupee such as this clearly tilts the strategy towards “sell upon rises” as against the erstwhile “buy upon dips” for the medium term. Possible targets of retracement would be 46.70, 47.30 and 47.50-47.80. So long as rallies are capped below the falling trendline (now at 48.11) , the bias would be in favour of the Indian unit.

Only and only upon a weekly close above 48.11-48.30 would sufficiently take the dollar out of the woods.


NOTE


There is considerable amount of negative sentiment towards the dollar – talks of it being replaced, dollar demise etc etc. In the past 5 years this has typically preceded major turns for the dollar .With the exception of pound and rupee which are still to catch up on the dollar index’s fall , the European currency may be closer to its fag end of the rally – given that the dollar index is oversold on multiple times –daily, weekly and monthly.

It is possible we have a scenario wherein dollar index gains, euro falls and rupee gains in the near to medium term

The reasoning or logic that tricked me into believing that the rupee’s near term direction was towards 49-50 was very simply this: if the dollar was holding above 48 despite the cross currency/commodity/ equity rally, then logically it should strengthen further when the asset classes correct. However, little did I know that the rupee was merely playing laggard and would simply follow the rest but with a time gap. If this is a lesson that the market is teaching –and a painful one at that, I am led to believe that while the near-medium term would be favorable for the rupee, it may not last indefinitely – for possibly after a 6 month gap after the dollar index reverses, the rupee may begin to turn back into weakness.

OIL Confirms Top

Further to the post on WTI Crude - August 26th, price has followed well our preferred view that oil was in its topping process.

A classic reversal pattern in oil confirms that the medium term uptrend that began from the March lows of 35 has ended. Price can fall to 58 conservatively. Any corrective moves from the current levels are unlikely to extend beyond 70-71.

The Chart Bears it all….

Is it any wonder that the Sensex is the acronym for the SENSITIVE INDEX.?

A sense of fear creeps in each time I voice a view on the benchmark index – for the simple reason that apart from serving as a barometer of business and investor confidence, it has been quite an impressive tutor in giving a lesson or two on humility. So sensitive, that each time I take a side with one of the two popular camps, the index has to first visit the opposing camp before it takes sides with me.

Markets have rallied further since my last report in August, where I suggested a possible top to have formed near 16100. My call then was for a move towards the lower end of 12000.

While I sit to reassess this view, with markets ruling strong at 16,400 currently, I’m clearly tempted to feel that calling for tops in the Sensex is perhaps an exercise in futility. However, the pattern that has unfolded in the charts visibly compels me not to succumb just yet.

This pattern better known as the diagonal triangle, is a special type of price action which typically occurs in the terminal part of a rally or fall which has moved too far or too fast. Price action gets to narrow down and is confined within two converging trend-lines.

Whenever such a pattern evolves, price usually breaks out in the opposing direction of the move immediately preceding it and usually price retraces back to at least the start of the triangle. In this case we could the index tanking downward.

A closer look at the chart above indicates that the current pattern is more or less emerging to be a mirror reflection of the pattern seen during Jan-March lows. There again, we saw index dropping to new lows in the form of a triangle, generating substantial feelings of pessimism – after which followed a sudden and sharp move to the upside.

Guess my wait for the index to finish its visit with my peers in the bull camp is fast coming to a close!

WTI Crude OIL

While price action is still above the rising trendline drawn from the 35 lows seen in early March 2009, the FUEL of economic growth –OIL may have topped out at 74!!

Reasons ??

• MACD divergence
• Price has near exactly retraced to the 38.2% retracement target and has been unable to breach it

While a test of 67 in pretty imminent, a break below 65 would serve to confirm the bet that oil has indeed made its intermediate top.


Implication is pretty straightforward – Dollar staging a comeback against commodities.

Indian Rupee

The USD/INR seems to be forming a clear double bottom pattern, which puts the odds in favour of the dollar. A sustained break of 48.90 should set the stage for a test of 50.20-50.40 near term .Given the recent range-bound movement in the pair, could expect to see a swift volatile move upon this breakout

Has the dollar made an important bottom?

The above chart traces the path of the dollar index-measures the dollar against a basket of currencies.

The move from April/May 2008 – 71 lows to near 90 in late March ’09 appears to have unfolded in 5 waves – IMPLUSE WAVE

To complete the Elliot pattern, there must be a 3 wave correction and the move from 90 to the recent 77.50 appears to have fitted into this 3 wave corrective pattern.

If the above wave count is right, then we could see the dollar beginning its next 5 wave impulse towards 90 conservatively.

Agreed, it may seem a little too early to call for a massive dollar rally in the upcoming months, especially given that the index is still trading below its 200 day EMA – however, we would get a clearer confirmation of the above wave count if in the next couple of weeks we get to see the index trade above 81.50

The path of least resistance at the moment is more towards dollar strength – which tilts the preferred strategy towards “buying the dollar on dips” rather than “selling upon rises”.

In case of any selling, selling dollars for the near maturities (3-5 months) would be preferred rather than longer tenures (5-12 months)

Dollar Index

A very interesting pattern seems to be emerging on the $ index – that of a price divergence, meaning that while the $ price (green line) has made a new low; the MACD indicator given at the bottom of the chart has not made a corresponding new low. This is indicative of the decreasing downside momentum in the dollar, suggesting that the odds favor short term dollar strength. A break above 80 would serve to cement dollar bullishness.

Sensitive Index

There’s every reason(s) (see below) to believe that the rally which started from 8000 in mid march may have formed a temporary top there setting the stage for a retracement anywhere between 38% and 50% of the entire rally.

• Divergence in the MACD (i.e. New high in price is not confirmed by a new high in the momentum indicator)- connotes bearishness
• Divergence in RSI
• Price unable to break above the long term rising trend-line
• 16100 is exactly the 61.8% retracement from 8000 low to 22000 peak

A classic confirmation of this intermediate top has been the occurrence of the reversal bar (highlighted in the chart below). Generally after the formation of reversal bars, there tends to be a move up before a larger decline .So from the current levels of 15100, we could see a move back towards 15500-15600 offering opportunities for partial booking of profits near term for entry at lower levels later





Ideally in this correction price will seek to fill the gap seen in the chart –lower end of 12000 or below.