USDINR

USDINR closed down for the 3rd consecutive month but still did not close below the 20-month average at 72.80 that I was waiting for a final confirmation that no upside is pending. It also closed down on weekly charts and the weekly momentum indicator remains in sell mode. The lower band is at 72.66 on weekly charts so once we start pushing below 72.60 we will see the weekly bands expand and the move lower will gain momentum. USDINR continued to diverge with the Nifty declining when the Nifty also went down. Eventually only one of the two will be right. Since September USDINR has not made a lower low after bouncing back and the decline has been very slow. So it has not confirmed the new highs of the market since Sept even though short term it has been falling. On the opposite side short term, it did not rise to confirm the fall in the market recently. All I can say looking at the USDINR stand-alone is that the trend readings are downward and the support in the range of 72.80-72.60 is important to watch for understanding what happens next.

AUDUSD

The AUDUSD is almost doing what the dollar is doing. So wave 2 down is done in terms of pullback. Wave 3 of 3 up should be next and can go toward where 3=1 near 0.86.

EURINR hold onto long term setup

EURINR has pulled back below the rising trendline, so I am taking it that wave 3 ended and wave 4 may be close to completion. What will follow is wave 5 that may also subdivide into 5 waves given the number of legs pending in the underlying pairs. So if wave 1 of 5 is equal to 1 of 3 we get 96. More conservative would be 38.2% of wave[1-3] which is near 93 to start with.

US Bond Yields could surprise

The 10-year bond price came close to making a double bottom and turned higher. The daily and weekly momentum indicators are close to both crossing over to the buy-side. I am therefore making some changes to the wave structure. Given the triangle formation between October and December, we have probably completed wave 1 down for US bonds, and a wave 2 bounce back is about to start. What this will mean is that we may go for a 50% retracement near the wave IV high [138.2] where the triangle formed or the 61.8% retracement at 138.6. This could take place over the next 2 months. We should also watch out for the possibility of a larger retracement just in case. What rising bond prices should mean though is that US bond yields will start to go down.

Falling yields should relieve the market from some pressure that was building up due to the rising yields. But on the other hand, rising yields are usually associated with a risk-on environment and falling yields for the risk of environment. What this can also mean is that US equities could enter another consolidation phase before going higher. Since the correlation is not a hundred percent simply use this as a warning to look out for a possible trend reversal in the near-term. 

On the other hand, this is good news for precious metals that usually come under pressure when bond yields are rising. In fact, this may have been 1 of the reasons why the falling dollar did not have a strong enough positive above on gold. Once yields start going down real interest rates term for the negative and that should provide gold with an impetus to rise during what I already called a seasonally bullish period for precious metals. Gold should take off in wave 3 of a new advance in the months ahead.