Rupee free fall against dollar likely over, say forex dealers

   Rupee free fall against dollar likely over, say forex dealers
RBI measures, passage of a few crucial bills in Parliament seen restoring investor confidence in currency

The rupee, which hit a record low of 68.85 a dollar on 28 August, has staged a dramatic recovery and since risen 5.5% to 65.25 on 6 September.

Updated: Sun, Sep 08 2013. 10 51 PM IST

Mumbai: Bankers are saying the worst is over for India’s currency. The rupee, which hit a record low of 68.85 a dollar on 28 August, has staged a dramatic recovery and since risen 5.5% to 65.25 on 6 September.

The Reserve Bank of India (RBI) on 28 August allowed oil marketing companies to buy dollars from the central bank through a swap window and followed this up on 4 September with allowing banks to swap their dollar deposits with it at a special concessional rate of 3.5% for at least three years and permitting local banks to raise 100% of their core capital from overseas all on 4 September. Such borrowing can also be swapped with RBI at 1% less than the market rates.

These measures and the passage of a few crucial bills in Parliament have restored investor confidence in the currency.

The rupee won’t go anywhere close to Rs68 per dollar in the next three to six months as dollar inflows from last week’s RBI moves and a likely shrinking trade deficit will support the currency, according to Agam Gupta, managing director, fixed income trading India, at Standard Chartered Bank Plc.

“I expect at least $15 billion to come from RBI’s recent moves on foreign currency deposits and allowing banks to raise higher amount of capital from abroad. Trade deficit is also likely to shrink and the government may announce more measures to curb gold and oil imports,” Gupta said, adding that all these measures mean that “the worse is over for the rupee.”

The trade deficit is the difference of a country’s exports and imports.

Gupta expects India’s deficit to ease to $10 billion in August from $12.27 billion in July as the value of exports rise and imports remain stable.

The rupee’s “secular downward move” is over, said Ashish Vaidya, head fixed income, currency and commodity trading, India, at UBS AG.

“We saw a phase in which the rupee fell sharply and more than other emerging market currencies. That phase is now over,” Vaidya said. “Yes, there are risks like a tapering by the US Federal Reserve and higher oil prices because of a possible US strike on Syria, but more or else the crisis is behind us.”

Higher oil prices are likely to worsen India’s current account deficit, which has ballooned to a record $88.2 billion or 4.8% of gross domestic product (GDP) in fiscal year 2012-13. Oil constitutes 80% of India’s imports.

Vaidya expects the rupee to be around 65 per dollar with a broader 62-65 per dollar range in the next three to six months.

To be sure, bankers do not expect the rupee to rise sharply from current levels. However, the sharp fall seen in the past four months is unlikely to be repeated. From 53.80 a dollar on 30 April, the rupee slumped 21.84% to 68.85 on 28 August.

The sentiment towards the Indian currency has turned for the better, said Manoj Rane, managing director and head of fixed income and treasury at BNP Paribas SA’s Indian unit.

“From here on, if the currency has to appreciate, we will have to see real capital inflows coming in,” Rane said. “I would think the RBI should target to keep the rupee value at Rs 65 per dollar because in times of global uncertainties it is better than the currency is a bit undervalued.”

A proposal from the BRICS (Brasil, Russia, India, China and South Africa) nations countries to launch a $100 billion currency reserve fund also arguers well for the rupee, according to Jayesh Mehta, managing director and country treasurer at the global markets group at Bank of America-Merrill Lynch.

On Thursday, the BRICS group announced the launch of a $100 billion currency reserve fund to tide over the likely end of the US Federal Reserve’s stimulus package. India will contribute $18 billion to the fund.

“It will create a buffer for the US tapering,” Mehta said, adding that he also expects $15 billion to $20 billion to come through bank deposits and fund raising from banks.

Besides the moves by RBI, two important developments in Parliament—the passage of the pension reform legislation that allows foreign direct investment of up to 26% in the sector and gives statutory power to the sector regulator and the land acquisition Bill—has also brightened investor sentiment.

August Market Update

August Market Update

Brandon Wendell

Instructor, CMT

There has been much debate by the talking heads about whether the current bull-run in equities is coming to an end. Rather than debating the Fed’s potential “tapering” or other events, I choose to focus on what really matters, the charts.
The S&P 500 Weekly chart has been retreating from all time highs. Since we did not have supply overhead until out most recent drop, I am not willing to short until I see a defined downtrend and a retest of a supply zone.  A break of the low 1600 demand zone could also trigger some panic.

The 2007-2008 market crash was preceded by a drop in the Russell 2000 index.  I am also watching this index for signs of weakness.  The daily chart has broken from a head and shoulders and may be headed toward the demand at 956.

If the daily demand doesn’t hold, the 938 weekly demand zone is old and tested and may only offer a small bounce to make a lower high before breaking to the 850 area.

In my article from a couple of weeks ago, I suggested that without the supply zones to tell us the top, we may have to rely on some related securities hitting demand to signal reversals.  I am closely watching the weekly supply zone on the 10 year note.  If prices of the note hold the demand zone and rates hold supply, then the equity markets may weaken.

So there is a lot to watch for the next few weeks in the markets. For investors and longer term traders, this indecision is a time to be cautious.  Wait to enter in either direction until you have clarity.  Deciding not to trade is a trading decision and may be the best way to protect your capital until you have more certainty in the markets.
ARTICLE SOURCE: TRADINGACADEMY.COM

Profit Zones

Profit Zones

Online Trading Academy, Chief Education, Products, and Services Officer

All market speculators share the same goal, which is to enjoy consistent low-risk profits. To accomplish this goal, you must be able to identify market turning points and market moves in advance with a very high degree of accuracy. This is the only way to attain low-risk and high-reward entries into market (trading) positions. Whether you are a short term trader for income or a longer term trader for wealth, nothing changes. Identifying key market turning points is the only way to attain the ideal risk / reward opportunity. Leading Extended Learning Track (XLT) sessions for so long, I have come across many people in the program. Occasionally, I receive an email from a member that is not satisfied with their results and desires better returns. Most of the time, they are not necessarily losing money but they are not making money or not making enough money, and desire more. One of my first questions to them has to do with strategy. I ask them, “Do you have a plan and are you following that plan?” Half the time the answer is no, so we dive into creating a proper plan and the importance of following that plan. The other half says they do have a plan and for the most part, follow it much of the time. For this group, my questions turn to the details of their plan, the strategy, where I look to see if their rules are proper or not. Sometimes, there is a rule or two that is incorrect and the student doesn’t know it so we correct it. In my many years of experience, I have found that most of the time, there is one specific and crucial rule that is missing from people’s plans more than any other and that is the focus of this piece.
Before we discuss this rule and its importance, let’s first turn our attention back to market turning points. Where are market turning points and where do market moves originate? Price movement in any and all markets is a function of an ongoing demand and supply equation. Market prices turn at price levels where this simple and straight forward equation is out of balance. Therefore, price in any market turns at price levels where demand and supply are out of balance which means the strongest turns in price occur at price levels where demand and supply are most out of balance. So, the question for us is this: what exactly does this picture look like on a price chart?
When I ask students this question, they quickly describe the picture of demand that I have shown in articles for years which is a “Drop – Base – Rally.” They then describe supply which is “Rally – Base – Drop.” These are the two pictures that clearly show price levels where demand and supply are out of balance which is what we as market speculators are looking for. Next, students go right into their rules for entries, targets, and stops and this is where I stop them as they are ignoring perhaps the most crucial rule that should be included in their trading plan. Drop – Base – Rally may be the picture of a price level where demand exceeds supply, a demand level. But, what EXACTLY is a demand level for you and your trading plan? I find that most people don’t quantify this with numbers and they need to. Quantifying exactly what “demand” (or supply) is to you and your plan is a key component to a trading plan that helps you have an edge over other trading plans that don’t. To explain this further and dive into the details, let’s look at an options trade I recently took and shared with some XLT students.

The chart above is a weekly chart of General Motors (GM). In the upper left portion of the chart, we identified an XLT supply level. As you can see, it is a large time frame rally – base – decline, the base is in between the two black supply lines which create our supply zone. Just because it represents the pattern/picture we are looking for does not at all mean we have a low risk / high reward trading opportunity. One of the most important questions that comes next is whether there is a significant Profit Zone associated with this demand level or not. The initial profit zone in this case is the distance between the two black circles (supply and demand). The presence of a significant profit zone is key for two reasons. The first is that it helps quantify the risk and reward. Second, the larger the profit zone, the higher the probability. This is because a big profit zone means price is far from equilibrium and out at price levels where the demand and supply imbalance is greatest. Compare the size of the supply base area between the two black supply lines with the distance to the demand below. The distance between the two black lines is the distance from our entry point to our protective stop loss price. We sell short at the supply zone and place our stop above the supply zone. This helps measure our risk. The distance from the supply zone to the demand below represents our potential profit zone. The logic is that if price was able to fall that far, this means there is no significant demand until the demand level below or lower. Back to our rule…
Rule: A supply level only becomes a supply level if the distance from the supply level to the demand is at least three times the supply level (1:3 Risk/Reward). Meaning, if the distance from entry to stop is two points in a market, the profit zone must offer at least six points or it does not qualify as a supply level for me. I will typically ignore any levels that don’t meet this minimum requirement.
While I require a 1:3 as a minimum requirement to actually meet the definition of a quality level, it may be different for you. You may require 1:4 or whatever. One of the most important factors for this successful trade was the profit zone and the length and speed of price to and from those levels. This is a rule many market speculators fail to consider.
Many people talk about supply and demand when trading and writing trading plans. Few actually define what supply and demand levels are exactly. This is another step in building the edge required to get paid from your competition instead of paying them. There are more subtle but important rules to consider but they are beyond the scope of this piece. If you have any questions or comments, feel free to email anytime.
ARTICLE SOURCE:TRADING ACADEMY.COM