USDEUR and USDINR - Update - November 2015

USDEUR and USDINR

With the conclusion of the recent FOMC meeting and release of its policy decisions on October 28^th at 2:00 p.m. US time, which coincides with 11:30 p.m. IST, the USD immediately became volatile and strong against EUR and the strength of USD also reflected against the INR the following day. Such sudden and knee jerk reactions are normally precursors and a confirmatory signal to the change of trends. The knee jerk reactions are a sign of reversal of positions by punters and market makers who have large exposures and who try to reverse their positions in the minimum possible time, thereby acting as front runners of the reversal process. In the usual course, the trend after such policy meetings is felt reasonably between a few days to a week subsequent to the policy decision, by which time the punters and market makers would have reversed their positions.

Post FOMC meeting, which concluded on October 28, 2015, I have been receiving messages with a lot of scepticism about my previous posts related to USD wherein I had mentioned that USD is expected to go weak against currencies of significance and wherein I had specifically presented charts of USDEUR and USDINR.

To worsen the matter, there are reports on internet, which speak about the near 2% yield on 10 year US treasury, etc. which will keep USD strong. Another report speaks that the Chinese economy is loosening and the devaluation of Yuan will not let USD go weak. Yet another report speaks of the obsolete Phillips curve. I get confused. If I do some more search I will perhaps get some more economic parameters and reasons which will convince the readers that the USD will go stronger. I will further get more confused.

In nutshell, if you combine all these factors mentioned above, you will get something called ‘khichri’, a famous Indian dish offered to sick people suffering from loose motions.

A very dear friend went to the extent of saying, “You are stubborn.”

BUT I AM NEITHER STUBBORN NOR CONVINCED.

Of all the derivatives – commodities, indices and currencies – currencies are the slowest to move. Such a slow movement may cause a range of variations in the opinions of people having interest in predicting currencies either because of exposures or because of profession and at times it is really hard to determine the precise time of change in the trend.

With the objective of substantiating my view, I am presenting a few charts again to clarify or rather magnify my point of view.

USDEUR

The multi-period candlestick chart of USDEUR has made multiple reversal candles and although the close of the last candle has been higher than the close of the previous candle, the entire last candle is formed within the range of the previous candle. This is coupled with a confirmed squeeze about to be completed on the line chart/ graph with adapted Bollinger Bands. This typical squeeze is more of a bearish squeeze rather than a bullish squeeze.

USDINR

The line graphs of Silver and USD with appropriate moving averages for their movement cycle/ momentum and with suitably adapted Bollinger Bands are compared in the following charts. The time periods of the line charts are mentioned thereon. The third chart is the extension of the second line chart.

The middle, upper and lower bands of the USDINR chart have flattened and are now in the early stage of narrowing down, causing to initiate the formation of a squeeze. It is quite possible that the actual USDINR rates continue to remain towards the upper end of the upper band but the process of formation of squeeze will lead the USD to drift lower. This may be gradual or abrupt. It is anybody’s guess.

Best wishes for the festive season.

For any clarifications please feel free to contact.

Contact:
The author can be contacted at riskadvisory@outlook.com

Disclaimer:

These extracts from my trading books are for educational purposes only. Any advice contained therein is provided for the general information of readers and does not have regard to any particular person's investment objectives, financial situation or needs and must not be construed as advice to buy, sell, hold or otherwise deal with any commodities, currencies, securities or other investments. Accordingly, no reader should act on the basis of any information contained therein without first having consulted a suitably qualified financial advisor.

Crude Oil (INR) - WTI Update for Nov 2015

Crude Oil (INR) – WTI – Update for November 2015

Since my last post on Crude Oil – WTI, NDF traded on MCX, India, Crude Oil remained range bound yet quite fluctuative within the range. In the last few sessions of October 2015, Crude Oil showed remarkable recovery and formed yet another reversal candlestick pattern, indicating a probable sideways to upwards movement.

Adapted Bollinger Bands also indicate convergence into formation of a squeeze in the near future. The other technical parameters at the time of completion of squeeze will indicate continuation of the trend or reversal of the trend.

As of now there is no indication of Crude Oil falling below the lows formed during the last month, i.e. Rs.2792.

Baker Hughes U.S. Rig Count reduction to 578 from previously reported 594 will probably keep the rates stable.

Contact:

The author can be contacted at riskadvisory@outlook.com

Disclaimer:

These extracts from my trading books are for educational purposes only. Any advice contained therein is provided for the general information of readers and does not have regard to any particular person's investment objectives, financial situation or needs and must not be construed as advice to buy, sell, hold or otherwise deal with any commodities, currencies, securities or other investments. Accordingly, no reader should act on the basis of any information contained therein without first having consulted a suitably qualified financial advisor.

China Cuts Interest Rate by 0.25 Percentage Points, Effective From Oct. 24

According to the flash news received just now, China is going to cut interest rates by 0.25% effective today, i.e. October 24, 2015. Please see the link given below:

http://www.bloomberg.com/news/articles/2015-10-23/china-cuts-interest-rate-by-0-25-ppt-effective-from-oct-24

This will have no impact on my views published earlier. The links of all my posts are given on the right of this post.

Contact:
The author can be contacted at riskadvisory@outlook.com

Disclaimer:

These extracts from my trading books are for educational purposes only. Any advice contained therein is provided for the general information of readers and does not have regard to any particular person's/ corporation’s investment objectives, financial situation or needs and must not be construed as advice to buy, sell, hold or otherwise deal with any commodities, currencies, securities or other investments. Accordingly, no reader should act on the basis of any information contained therein without first having consulted a suitably qualified financial advisor.

The SOS Call

The panic situation

A few years back, late evening I received a phone call from an employee of MF Global Dubai, whom I had been in touch with through an NRI acquaintance.

The guy was a Punjabi, working in Dubai and during the call, he spoke with me in the native language as if we were long lost friends. I really felt nice. This phone call was out of the blue and I thought to myself how good and humane this guy was. After speaking for about 10-15 minutes in a freewheeling conversation wherein I could not figure out the purpose of his call, he finally broke the ice and insisted that I open an account with them and also recommend a few more clients who could possibly open their accounts with MF Global.

I humbly told him that I was governed by the RBI rules and it wasn’t possible for me to open an account with them and also that I didn’t know of any other NRI who could do so.

A week to ten days later the news of MF Global going bankrupt became public.

Such desperate, out of the blue calls to persuade new customers to open fresh accounts to infuse liquidity in the company/ system are sure shot signs of panic in the system. This is akin to the Ponzi/ Chit fund schemes which overspend or which invest/ divert the members’ funds unscrupulously in the hope of sustenance out of future subscriptions from the existing members or fresh injection of funds by the future new members. Till the time the money keeps flowing in everything is hunky-dory but the first sign of liquidity problems triggers such kind of panic reactions from these brokerages or schemes to generate fresh funds by inducting new members. Unfortunately by that time the party is generally over and people are returning home.

The Big investment Bowl of Banks

Every time I visit the bank to deposit a cheque or for any other reason, I am met by the ever smiling relationship manager, only with a difference now. She spends more time with me and tries to persuade me to invest in the newly launched investment schemes of the bank with various options available and mind you, with full capital protection. I do not read the fine print because I generally do not carry my reading glasses with me to the bank. When she speaks with confidence about the booming stock market of India and the world, and that India is more resilient in comparison to the global stock markets, she is filled with pride towards her motherland. With such a positive attitude she gives me an inferiority complex and makes me think twice about what I am about to write.

Chinese Ponzi Scheme v/s Fed’s Casino and their impact on respective Indices – Which will beat the other in terms of speed of fall?

Enter Las Vegas and you are offered free coupons to start playing in a casino along with free liquor and free food. If you put in your money on stake and if you go bankrupt – and the chances are very bright that you would – you are given a free drop home. That’s what I have been told about the casinos in Las Vegas.

We have already seen the speed of the fall of the Shanghai Composite in the recent past. It is now a matter of time to see how long the Dow Jones can sustain itself and how speedier will be its fall. Will it be speedier in comparison to the fall of the Shanghai Composite or much slower?

Why would it fall? That is what anyone would ask.

Very simple and elementary. What China did to its economy for past two decades, the US did it in the past 7-8 years. Only the modus operandi was different.

China kept funding the losses of State run enterprises which flooded across the globe, billions and billions of units of cheap goods at below cost price to attract FDI from across the globe. This is nothing but a Ponzi scheme run at the level of a State. Alas we do not have a UN Council of Ponzi and Casino to check such Ponzi Schemes. Even if we had one, I can bet that despite all push and pull, India would not have got a seat there and would have got vetoed.

The US through Fed, gave away free capital through a series of QEs (somewhat like the zero interest EMI schemes of Indian retailers to push the sales of Apple iphones designed in the USA and made in China – subsequently banned by the RBI a few years back; perhaps RBI realises it well that there is no free lunch) to absorb the prior generation bad debts and the losses in the system in one stroke after the collapse (I am just discussing the concept and not discussing the nitty gritty of the Fed schemes) to smoothen the lives of the millions of Americans.

So while the Ponzi Scheme of China is yet under the wraps and covers and has manifested itself by way of crash of the Shanghai Composite, the fallout of the Fed’s casino, played publicly over the table, is yet to manifest itself by its impact on the US stock indices. Both the schemes did well in terms of creating substantial public and global interest.

The Chinese Ponzi scheme was born out of the ambition and greed to kill the global competition and be a supreme economic power whereas the Fed’s Casinos was born out of the fear of sustenance.

The Ponzi scheme did not realise that the scheme will make the adjoining and competing countries more healthy and fit for competition. If I can reliably get my food and daily amenities at half the cost and in time, I would rather focus my energies on something more creative in life and create more competitive advantages for myself.

In the game of Fed’s casino, fresh bets were placed to cover the losses arising out of the bets of a previous game. The Fed’s casino did not realise that the capital will flow to the point of maximum returns across the globe (may kindly be read as the point of riskier returns) without thinking twice as to what if a similar fate strikes the US economy again as it did in the year 2008. What will the Fed do then? Open a fresh QE front (aka new casino) before winding up the previous one to start a new chapter or….? May be the Fed can shed some light on it.

The above two State run schemes give me nightmares when I think of ecommerce companies like Amazon India, Flipkart, Paytm, Shopclues, et al, which work on the concept of GMV (Gross Market Value) and offer deep discounts to acquire customers. And as if the things were not bad enough for these companies, Alibaba (aur chalees chor) is ready to jump in the bandwagon in the quest of making more losses. Are we not running a legalised Ponzi scheme here? They are selling the products and writing a cheque too! Who will finally pay for the losses of these giants (remember that there is no free lunch), who in their greed to become dominant players in the ecommerce market of future are burning cash today?

Meanwhile here are the updated multi-period candlestick and line charts of the key stock market indices as at the end of the first fortnight of October 2015.

The multi-period candlestick charts are not yet complete for the multi-period, however the not yet complete charts have no impact on the analysis given below.

I do not wish to sound negative but somehow I find it tough to speak the euphemistic language of most of the market analysts simply because I am not familiar with the jargon. These charts are important because I personally feel that the global stock markets will not be able to sustain for long and the fall is inevitable. I maintain my stance that the markets remain bearish with intermediate pull backs irrespective of whether there is an interest rate hike by the Fed or not, whether there is a QE going to be announced by China or not, whether there is an announcement of a fresh Ponzi scheme or a new casino in the global arena.

A Caveat

The pull backs mentioned in the foregoing paragraph might be momentous and might give an impression of a full blown bullish wave though I assign a very low probability of occurrence of such pull backs.

Best wishes.

Links to my previous posts:

1. What do Shanghai Composite and Silver have in common?

2. Nifty headed for.....

3. What is going to happen to the USD after this?

4. United we fall Divided we stand

5. Gold and Silver poised for Vertical Charlie

Contact:

The author can be contacted at riskadvisory@outlook.com

Disclaimer:

These extracts from my trading books are for educational purposes only. Any advice contained therein is provided for the general information of readers and does not have regard to any particular person's/ corporation’s investment objectives, financial situation or needs and must not be construed as advice to buy, sell, hold or otherwise deal with any commodities, currencies, securities or other investments. Accordingly, no reader should act on the basis of any information contained therein without first having consulted a suitably qualified financial advisor.

Gold and Silver poised for Vertical Charlie

Has the Wall Street finally given up on the economic recovery?

During the period 2008 till now, the US Central Bank framed economic policies that systematically channelized the funds of the US economy towards the stock markets by creating an environment of:

a) zero or near zero interest rates

b) more than adequate liquidity in the entire US and global economy focused towards creation of capital and generation of employment (knowing very well that the recovery of the US economy is dependent upon the general overall progress and recovery of the global economy)

c) restoration of consumer confidence in the economy for putting consumer spending back on track

d) inflation target of 2% (which could never be achieved – perhaps the only indicator which indicates that the anomalies in the US market still exist and the growth has occurred in a highly skewed manner only in select geographical pockets and the distribution of the benefits of such growth are equally skewed and uneven)

It was beneficial for the largest economy of the world (in terms of consumption and GDP) to have a strong domestic currency, i.e., USD, to have low cost imports for the consumers to get out of the depression spiral as soon as possible. That perhaps explains for the stronger dollar against majority of the global currencies (Please refer to my blog: What will happen to the US Dollar after this? http://commoditycurry.blogspot.in/2015/09/what-is-going-to-happen-to-usd-after.html)

The US economy having reached the peak of the (so claimed) recovery which henceforth seems to unsustainable at the historic rates and with inflation target not having been met, it now makes sense for the Fed to depreciate the currency and eventually fall in line with the global secular trend. After all no economy or central bank can control or influence the world economy or afford to do so for so long (nearly a decade) with its policies and words.

Gold and Silver

Gold and silver are poised for a vertical take-off, in the era of beginning of a faltering US economic recovery, zero interest rates nearing an end and a weakening USD.

Here are the charts of Gold and Silver. My comments are given on the charts

Here is the link to my previous posts/ blogs:

https://www.blogger.com/blogger.g?blogID=1468036188628941426#allposts/src=dashboard

Contact:

The author can be contacted at riskadvisory@outlook.com

Disclaimer:

These extracts from my trading books are for educational purposes only. Any advice contained therein is provided for the general information of readers and does not have regard to any particular person's/ corporation’s investment objectives, financial situation or needs and must not be construed as advice to buy, sell, hold or otherwise deal with any commodities, currencies, securities or other investments. Accordingly, no reader should act on the basis of any information contained therein without first having consulted a suitably qualified financial advisor.

United we Fall Divided we Stand

United Colours of Global Stock Markets

Based upon a tremendous response from the readers of my blogs and their specific queries, I am encouraged to post the updates much earlier than my scheduled interval so as to give them a better and informed perspective on the stock markets with specific reference to Nifty.

Normally these predictive and forward looking statements are available for a charge. However, it is imperative to give clarification to the general public related to my previous blogs, because a majority of the public does not have means and tools to make an informed analysis of the data and the news and it usually gets carried away by the hopes and sentiments of the street.

By my past experiences, I have learnt that it is the first wave which determines the onset of a trend. Even after the initiation of the first wave an ordinary investor (generally a bullish investor) is always hopeful that the market will touch its previous highs and will also perhaps cross them (assuring himself – this time it will be different, without knowing the truth that each time it is the same). It is the greed which plays here. The emotions come into play but if you need to be in the stock markets, like any other business you need to cut your losses by being unemotional.

By the time the second bearish wave sets in, the mix of fear and hope sets in. Now it is a balanced mix of fear and greed which comes into play. “What if the stocks fall further; what if I sell now and the markets bounce back; no I don’t think markets will plunge further.”

By the time the third wave sets in, it is predominantly the fear which acts now (What if the stocks fall further) and the combined fear of all the ordinary investors makes the third wave. This can be an extended or a short wave. The duration of the wave may or may not match the multi-period candlestick patterns/ charts that I may display in this post of mine.

Keeping the above facts in mind, I will make an attempt to project what I expect to happen in the stock markets, with specific reference to Nifty. Though we are talking about the stock market index, for the ease of understanding, I will be using the graph of EURINR with adapted Bollinger Bands.

Nifty made first bearish signal on the weekly candlestick charts for the week ended on 05 March, 2015. This was followed by bearish fortnightly and multi-period candlestick chart signals and confirmations.

Therefore assuming that Nifty is not bearish and being hopeful that it will recover and overshoot its previous highs is certainly neither right nor possible despite whatever promises or hopes any analyst or fund manager may give to the investing public. Please see the charts. Nifty has already made one complete wave of bearishness. Bearishness in Nifty started almost a month earlier than it happened in Dow and DAX, though both Dow and DAX and respective technical indicators had given adequate warnings/ signals of the start of the bear phase. A 0.25% rate increase or no increase by FED will make no impact on Dow or DAX. The markets have already determined their course – downwards with small intermediate pull backs.

Intermediate (two – three fortnights) projections for Nifty

Nifty has made a pattern on the fortnightly candlestick charts indicating intermediate pull back/ reversal (calling it bullish will be inappropriate). I expect the market to move sideways to upwards atleast till October end.

Down below is the comparison of Nifty current graph with the graph of EURINR of the past.

Comparison of Nifty Line Graph with that of EURINR.

Here is the link to all my previous posts, which will serve as a good reference to this post of mine.

https://www.blogger.com/blogger.g?blogID=1468036188628941426#allposts

Please await my post on Gold and Silver.

Best wishes.

Contact:

The author can be contacted at riskadvisory@outlook.com

Disclaimer:

These extracts from my trading books are for educational purposes only. Any advice contained therein is provided for the general information of readers and does not have regard to any particular person's investment objectives, financial situation or needs and must not be construed as advice to buy, sell, hold or otherwise deal with any commodities, currencies, securities or other investments. Accordingly, no reader should act on the basis of any information contained therein without first having consulted a suitably qualified financial advisor.

What is going to happen to the USD after this?

What is going to happen to the USD after this?

Imagine what will happen if the USD takes a plunge against all the major currencies of the world. The immediate reaction of most of you will be:

• Not possible

·  Not exactly. Till a year back many of us were used to thinking that the international (Brent/ WTI) crude oil prices cannot go below a certain rate because it is unviable for producers to produce below that rate. In fact, the production of Crude Oil as of now is far in excess of demand and the prices have dipped. The production still remains unabated because the producers are now weighing how much losses would they incur by not producing vis-à-vis by continuing to produce oil.

Sometimes we are unable to see the unforeseen because of lack of our past experiences.

What if USD actually goes weak?

I can think of two possible outcomes of greater significance:

•        The USD denominated debt of most of the countries in their local currencies will get reduced – A welcome outcome
•      Theoretically, if the exchange rate of USD goes below the cost price of the reserves of the Central Bank of a particular country, you can expect the country/ Central Bank to sell the USD reserves and buy stronger currency (instead of being saddled with losses) and the USD rate will further go in the tail-spin – A situation somewhat similar to that of the crude oil discussed above but with different reasons

This is how most of the financial markets work and though it may sound impractical it may actually happen in real life. We have in any case seen the live case of Crude Oil.

Coming to a Billion Rupee question: What is the worth of a USD? Do we have a formula to calculate the value of USD? What is the real exchange rate of USDEUR or USDINR?

Simply put, the real and absolute exchange rate of a currency cannot be determined. There is possibly no single econometric or statistical model/ method which can determine an accurate exchange rate between two currencies. All exchange rates are relative.

To make things simpler for readers, I will take an example of the stock price of a company/ firm. The stock price of a company/ firm always keeps changing and is a function of a host of factors, including but not limited to the:

•          Value of the company
•          Outstanding nos. of ordinary stock
•          Growth rate of EBIDTA/ Earnings/ EPS
•          Reserves and Outstanding debt, etc., and
•          An element of speculation

If the company/ firm issues ordinary stock far in excess of the current outstanding stock, the stock price of the company reduces proportionately to the excess stock issued.

Similarly, the value of a currency is also always relative to itself (over a span of time – short/ medium/ long) and to other currencies and is a function of a host of factors, including but not limited to the:

• GDP of the country
• Amount of currency in circulation in domestic and international markets
• Growth rate of the GDP of the country
• Trade data and dynamics (surpluses and deficits) with its trade partners
• Forex reserves holdings, outstanding National Debt, etc., and of course
• An element of speculation

Personally, for me it is tough to understand how a country (I am referring to the US) which had been printing more currency year after year for last so many years (under QE); with its Central Bank’s balance sheet size exceeding US$ 4 trillion from a balance sheet size of US$ 1 trillion 7-8 years back (no doubt with an increasing GDP), can have its currency’s value going up phenomenally against all the currencies of the world. Either the other countries are doing too badly or the US is doing exceedingly well. Everything is relative.

Or perhaps, because everything is relative and the fact that there is no true measure to find the worth of a currency, a greater degree of element of speculation comes in play to systematically rig a currency.
Please see the fresh link posted in the comments section.

My intent here is not to invoke any discussion regarding a statistical/ econometric/ mathematical formula (to reveal the secret – I am poor in statistics) to calculate the worth of USD, but to have a critical view about the worth of USD against currencies of significance and where is USD headed for in the near future in light of the example given above about the stock price of a company.

Here are two charts that I want your attention to be drawn to and these charts are worth examining closely:

USDINR graph – May 01, 2011 - Sep 10, 2015

Silver Graph – Jul 01, 2010 - Sep 20, 2011

Legends:

Yellow line – Actual data values

Middle line – Moving average suitably chosen as per the cycle of the commodity/ currency

Upper/ Lower Band – Adapted from Bollinger Bands

If the latest graph of USD is mirroring somewhat like that of silver in the past, don’t you think it is worth considering as to WHAT HAPPENED TO SILVER graph if it were extended in time. That will perhaps unveil the secret to the Billion Rupee question posed above: “What is the true worth of the USD?”

Here’s What Happened to Silver

Silver Line Graph – July 01, 2010 to Sep 30, 2011

I will leave you all with these thoughts:

• Will a 0.25% rate hike by FED make the USD much stronger?
• Will a 0.25% rate hike by FED impact the profitability of the US Companies so much that the US markets will fall?
• Will a 0.25% rate hike by FED will lead to all the US Dollars in the world march towards the USA, leaving all the local currencies high and dry?

Alternatively:

• If a 0.25% rate hike is deferred by FED, would it take the US markets to the previous highs?
• Will a 0.25% rate hike deferment by FED lead to the USD being weaker?

Perhaps none of this will happen. Perhaps all the factors are in-built in the rate of the USD or perhaps none of them is in-built if the governing factors of the value of the USD are entirely different from what I have discussed elsewhere in this post. Perhaps a FED hike of 0.25% rate is an over-hyped event which is not of any significance but probably a great reason to be advanced by the punters of the stock markets or the currency markets to generate turbulence. Perhaps we have crowded our minds with all sort of questions which have no relevance to what is bound to happen to the US markets and the USD.

Perhaps the chart of silver shown above can decipher the track of the USD.

We will all perhaps come to realise this in a very short span of time.

Contact

The author can be contacted at riskadvisory@outlook.com

Disclaimer:

These extracts from my trading books are for educational purposes only. Any advice contained therein is provided for the general information of readers and does not have regard to any particular person's/ corporation’s investment objectives, financial situation or needs and must not be construed as advice to buy, sell, hold or otherwise deal with any commodities, currencies, securities or other investments. Accordingly, no reader should act on the basis of any information contained therein without first having consulted a suitably qualified financial advisor.