Looking for a Clue

Published: Fri, 03/27/20

27 March 2019

The markets continue to gyrate and if you are looking for a clue then it is somewhere between the currency and commodity markets. Logically all this stimulus coming out of the noses of all central banks spur inflation driving down the dollar and up prices. But it is? Watch the tea leaves and you will see what is really happening on the ground, inflation or deflation. And yes if it does not work they will fire another round.

Crude

As long as every rally in oil appears corrective in nature we will continue to market is a subdivision of the ongoing downward move. In this case it is possible that wave v of V is subdividing and we are still in wave 3 down that is not complete and could head towards $ 18 or lower.

crude 260320

Indian 10 year bond yields

The Indian bond yields did not go above 6.50% and are now falling again. That was my cut off to cancel this wave count of a 5 wave decline. Now we are in wave V down and wave iii of V of 5, so yields continue to drop for a while. The 5 wave fall then will be wave A down and the subsequent bounce wave B up. Still watching to see if the fall completes in 5 down. Any variation can change everything. But for now the bond market has been kept from going into panic like it did in some other EMs in the last few weeks.

gsec 270320

Dollar Index

Central banks around the world are putting up a fight to keep their economies afloat and in doing so are causing dollar volatility to explode. Now it has broken out of both sides of the 1 year expanding range and with no follow through. But eventually a trend must emerge and they will have to deal with it. Rotational devaluations are keeping it in a range for now. The monthly candle is going to be a 'dragon fly doji' if you know what that means. A rare bar with a long upper and lower shadow. My wave markings are now biased to the upside unless proven otherwise by a sustained decline. A 50% retracement is done in what could be wave 2 down.

dxy 270320

Relative Rupee

The Relative Rupee as I like to call it is the DXY/INR ratio, that represents the relative strength of the rupee compared to the dollar index itself. For example if the dollar keeps rising and the USDINR does not it reflects here. Similarly sometimes the USDINR may go up too much. So looking at this chart broadly from 1998 onward the ratio has been moving up inside a channel. Readings at the top end show an undervalued rupee and lower end an over valued rupee. The indicator has now spent a prolonged period of time at the lower end of the range. Since April 2017 we have touched the lower end of the channel a couple of times and none of the moves are going to the top end. A Prolonged holding down of the currency pair will at some point of time have a spiraling effect at some point of time when you lose control of the movements. Today RBI has allowed entry into the NDF market to Indian Banks. This will enhance global liquidity for the currency and make it more difficult to hold down artificially. Good for free markets.

rr 270320

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Rohit Srivastava
www.indiacharts.com
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