I thought of sharing the EUR/USD chart that I have been following for quite some time :-).
Chart of EUR/USD:
As you see in the chart, USD is having a rally [or the EUR is retracing]. With the Fed's move, wasn't USD supposed to get weaker?
My take on the events happening:
1. G20 [or rather G19 + USA] summit is pushing US to stop devaluing USD further. USD, is not just another currency. All the commodities [oil/gold/silver/metals etc] are traded in USD. With USD getting devalued, the commodities will get costlier, impacting export oriented countries. And the extra USD would also flow into these countries as investments and further increase the inflation. And yes there are a lot more problems :-).
2. The weakness in the market could be due to ongoing G20 Summit - No one's sure what will happen to USD :D.
3. If EUR/USD takes support at the 23.6% retracement level, and starts the rally again, we should expect the Stock markets around world to follow suit [Hopefully EUR doesn't get weaker due to some Euro Nation/Bank going bust ;-)].
4. If EUR/USD falls further, we should see a deeper correction in world markets. Another point from my experience is that "FII's" never invest when the markets are at highs, they pull it down [by inducing fresh shorts/ or exiting from ETFs] and then rally. If this were to happen, we could easily see 5800-6000 on Nifty very soon. 6000 puts have the highest OI[open interest] suggesting there is significant support through put writing that has happened.
5. However, the excess USD induced by Fed will definitely enter the emerging markets and we are sure of a rally. But, with the current situation not sure whether we will have a correction before a rally.
-Sri
600 billion was already factored in, markets had guessed QE2 in august itself. Ireland is shaky again, which has contributed to weakness in Euro. By the way Goldman sachs has already told its client to book profit in china... (http://www.businessweek.com/news/2010-11-11/goldman-tells-investors-to-exit-china-stock-bet-with-11-3-gain.html). My suggestion would be to short Futures and hold a option with 3month expiry at same strike rate.
ReplyDeleteI am not good at predicting the current months NF close with options... 3 months options is a definite bouncer :-P...
ReplyDeleteToday's strong close in FTSE/CAC/DAX inspite of deep cut in Dow is quite surprising.
I would consider that "Now" we are in a range 5900-6300. Except for intraday [max 2/3 day moves] I don't expect deep cuts or rallies. I would consider the trend to be down when NF closes below 6150 and BNF closes below 12610.
I am still not confident of shorting this market.
For me rally is over, bcose all the money has come to india and good news due to QE2 is factored in. Till year end, either there will be a correction or markets may move side ways.
ReplyDeleteDow jones might open below 11200, if it closes below 11200. we are headed for a 10% or more correction.My bets in equities are proving right. In curreny I am still bearish on dollar on long time frame and long on ruppee for long term. May be 1yr put for dollar might be good option to buy(if they write 1yr put for dollar :)).
ReplyDeleteI want reasons :-)....
ReplyDeleteThe breakout bar for Dow on Daily charts has a low of 11216. If there is a close below this level, I would consider it would be failed breakout [Similar to what happened in Aug 2010].
I am not with you on the 10% move. I would use Fibonacci retracements [9600-11400] and trendlines to look for support. I am also not with you on the Options. Long term options are extremely ill-liquid contracts, have a look the Bid/Offer prices. Long term options are only for institutional traders or hedge funds not for individual traders.
It takes time to get a trend confirmation. As of now I see FTSE has clawed back 100 points from the lows. I have seen this happen very few times. To me the trend is still up/sideways markets[For NF a range of 400 points].
I see stocks like SBI/Infosys/RIL to be ultra cheap compared to last time Nifty was at 6100. I would consider accumulating bluechips as of now.
Few other things to consider:
ReplyDelete1. Dow Jones has a inverted H&S with NeckLine at 10700 => Support.
2. S&P500 has hit its resistance level of 1220, which could also be the reason for the recent pullback.
dow down 200 pts, bond yield in US is rising ... even though Fed is buying bonds. Fed has played into the hands of market. Hedge funds bought bond in Aug,Sep,Oct and they are dumping at a pace greater than at which Fed is buying them.
ReplyDelete