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Monthly Currency Derivatives
Trade long near 60.7-61.2 for target of 63…
Amit Gupta
Rohit Gokhale
[email protected]
[email protected]
November 10, 2014
Positional Recommendations
Buy US$INR:
Long US$INR November future in the range of 60.85-61.15. Target 1: 62.20, Target 2: 63.10, Stop
loss: 60.05
Rationale:
US$INR Strategy
Even after the significant rally of dollar index the rupee remained resilient and displayed strength
in second half of October. Call writers in 62 & 62.5 strikes constantly kept US$INR under selling
pressure near 62 levels. November series has also commenced with similar options structure,
which suggests the pair may trade in a tight range in near month. In the second half of preceding
series, currency pair saw some fresh short build up near 62 levels. On the lower side, key 50, 100
& 200 DMAs are in the range of 60.7-61.2. Also, NDF data suggests the move of currency pair
may remain range bound. Hence, we recommend going long near support of 60.7-61.2
Sell EURINR:
Sell EURINR November future in the range of 78.10-78.40, Target 1: 75.5, Target 2: 73.5. Stop
loss: 79.90
Rationale:
EURINR Strategy
In the second half of October, the dollar index resumed its uptrend and scaled four-year highs.
Such strengthening of US dollar led to weak moves in major currencies like the euro, JPY, etc.
Strong US$ and continued instability throughout eurozone led to a further decline in EURINR
towards June 2013 lows, wherein the pair witnessed fresh short-build up (OI rose from 39325 to
58180 contracts). In the recent past, the 50 & 100 DMAs have acted as strong resistance levels for
EURINR, which are currently placed at 78.8 and 80. We believe the US$ may continue to display
a strong move in near future. Hence, we recommend shorting the pair on rallies
2
US$INR
Levels of –
60.7-61.0
shouldService
be utilised to buy US$INR…
Deal :Team
At Your
•
During the first half of the October series equity markets continued to slide as heavyweights witnessed profit booking.
FIIs took out partial funds from equities in the same period. However, they continued to favour India’s debt market to
park funds. Still, the Dollar Index cooled off from 86.75 to 84.5, which allowed the rupee to recover towards 61 levels
from its recent high of 62
•
In the second half of the month, the Indian equity markets recovered along with many global equities and witnessed a
significant rally towards the end of October. An improving set of economic data and the Fed’s recent dovish
statement over interest rates gave further boost to equity markets. However, the dollar index again rallied to its fouryear highs primarily due to stimulus expectations in Europe and Japan. During this period, the rupee showed
significant resilience due to sustained FIIs inflows. As the US$INR slid twice from 62 levels, the pair witnessed fresh
short build up in later part wherein OI rose from 1.68 million to 2.73 million
Similar to the October series, the November series has started with 61 Put strike holding OI build-up of over 62000
contracts. Also, key 50, 100 & 200 DMAs are placed in the region of 60.7-61.2. Hence, these levels are likely to act as
immediate support. Above the highest Call base of 62, short covering may lead to 63 levels
November Series options build up
61
2800
60
2200
58
Source: Bloomberg, ICICIdirect.com Research
Open Interest
3
US$INR
31-Oct
23-Oct
16-Oct
Put OI
8-Oct
57
26-Sep
65.00
64.50
64.00
63.50
63.00
62.50
59
5-Aug
Call OI
62.00
61.50
400
61.00
-10000
60.50
1000
60.00
10000
59.50
1600
59.00
30000
19-Sep
50000
3400
12-Sep
90000
70000
5-Sep
110000
62
4000
28-Aug
130000
21-Aug
OI in Thousands
150000
63
Short covering visible as US$INR rallies to 62
4600
12-Aug
170000
58.50
•
EURINR
: Weak Euro
to force EURINR
to trade lower…
Deal Team
– likely
At Your
Service
•
A strengthening US$ and persistent instability throughout the eurozone have yet again resulted into a slide in the
euro towards 1.24 levels. During this period, currencies of many countries weakened but the rupee showed strength
supported by improving economic sentiments and FIIs inflows. This led to a decline in EURINR towards June 2013
lows of 76.5. In the October series, we have also observed fresh short build-up in the pair wherein OI rose from
39325 to 58180 contracts
•
We have observed that in the recent downward trend, intermediate bounces of EURINR have met stiff resilience near
50 & 100 DMA, which are currently placed at 78..8 & 80 levels, respectively, and are expected to act as major
resistances in near future. Also, on the lower side, a breach below 76.5 could lead to a further decline towards 73
Weak Euro continues to fuel dollar index rally…Fresh shorts forcing EURINR tumble further
1.42
83
82
81
80
79
78
77
76
75
74
73
72
90
1.39
80
Source: Bloomberg, ICICIdirect.com Research
4
Open Interest
EUR INR
31-Oct
23-Oct
16-Oct
8-Oct
26-Sep
EURUS$
19-Sep
10/2/14
8/2/14
6/2/14
4/2/14
2/2/14
12/2/13
10/2/13
8/2/13
6/2/13
4/2/13
2/2/13
12/2/12
10/2/12
8/2/12
30
6/2/12
1.18
4/2/12
40
2/2/12
1.21
12-Sep
50
5-Sep
1.24
60
28-Aug
1.27
21-Aug
1.3
70
12-Aug
1.33
5-Aug
OI in Thousands
1.36
Significantly weak JPY likely to keep JPYINR weak… GBINR also expected to stay under selling pressure if it
Deal
Team
– At Your & strong INR Service
trades below
100 levels…
GBPINR: Downward move to continue till it trades below 100…
5
102
100
70
98
50
96
Open Interest
26
24
22
20
18
16
14
12
10
8
6
3 1 -O ct
2 3 -O ct
1 6 -O ct
8 -O ct
2 6 -Sep
1 9 -Sep
1 2 -Sep
5 -A u g
5 -Sep
92
2 8 -A u g
10
2 1 -A u g
94
1 2 -A u g
30
GBP INR
Fresh shorts pushed
JPYINR further down
60
58
56
54
52
Open Interest
JPY INR
Source: Bloomberg, ICICIdirect.com Research
3 1 -O ct
2 3 -O ct
1 6 -O ct
8 -O ct
2 6 -Sep
1 9 -Sep
1 2 -Sep
5 -Sep
2 8 -Au g
50
2 1 -Au g
A strengthening US dollar forced most other currencies to
weaken further. In the second half of October, BOJ’s unexpected
stance over stimulus forced JPY to weaken significantly against
US$ and it surpassed December 2007 highs. On the other hand, a
strong INR led the JPYINR to tumble towards May 2013 lows of
53.5. Towards the end of October, it tumbled sharply from 57
levels witnessing fresh short build-up (OI rose from 7500 to 18360
contracts). We believe that current negative sentiments may keep
the pair under selling pressure, wherein, breaking below 53.5
could force it to slide further towards 51.7 levels
90
1 2 -Au g
JPYINR: Likely to trade under selling pressure…
104
Long liquidation continues as
GBPINR trades in a range.
5 -Au g
•
110
O I in T h o u san d s
In October, after a breather for two weeks dollar index resumed
uptrend and reached four-year highs post FOMC outcome. As
US$ strengthened, currencies of developed countries’ weakened
further. Heavyweights from dollar index viz. Euro, JPY and GBP
weakened significantly during this month. On the other hand, the
rupee displayed strength against US$, which resulted in a slide in
GBPINR from 101 levels towards its key support of 97.5. Overall
move of GBPINR expectedly remained in the broader range of
97.5 to 101.5, which led to further long liquidation in the series.
The pair is trading below its key 50 & 100 DMAs. GBPINR may
continue to trend downwards and may tumble towards 95 levels
until it trades below supply zone of 99.5-101
O I in T h o u san d s
•
Some
is seen
in NDF-INR
leading to stability in USDINR...
Dealcool-off
Team
– At
Yourspread
Service
NDF 1 M - INR Spot Spread
1.000
One month NDF premiums over INR spot could
not surpass pivotal range of 0.40-0.60
0.800
0.600
0.400
0.200
2.700
NDF 3 M - INR Spot Spread
2.200
3M - INR spot spread remains below key levels
1.700
1.200
19-Jul
0.200
27-Apr
0.700
Source: Bloomberg, ICICIdirect.com Research
6
19-Jul
27-Apr
3-Feb
12-Nov
21-Aug
0.000
3-Feb
With one-month spread of NDF-INR Spot cooling off in
October, 3-M NDF premiums also witnessed a similar
scenario, wherein the spread, which saw an uptick in the
preceding month, cooled off in October. Until the spread
remains below 1-1.5 mark, we continue to believe that INR
may not depreciate significantly and it may continue to
outperform its emerging market peers in near future.
However, in range bound trade, it can be bought near
60.7-61.0 levels
1.200
12-Nov
•
The overall declining trend of one-month non-deliverable
forward (NDF) premium over the INR spot, which
commenced from October 2013 saw a halt and a jump
towards pivotal 0.40-0.60 was seen in September.
However, as the INR strengthens in succeeding October
months, the spread cooled off yet again. Sentiments
boosting equity market rallies and continued FII inflows
have yet again supported INR from depreciating against a
strengthening US$. We believe these premiums may not
shrink much considering the dollar strength
21-Aug
•
FII flows in India: Debt market continues to witness noticeable inflows…
•
Due to the persistent slowdown in the euro zone and continued geopolitical risk, FIIs further reduced their exposures
into equities of emerging economies. As we observed in the preceding two months, the trend continued in October
2014 as well, with the Indian equity segment witnessing inflows of barely | 219 crore. However, in the recent recovery
of equity markets, FIIs have again poured money in the last few trading sessions.
•
While the Indian equity segment is witnessing reducing exposure from FIIs, the debt segment saw noticeable amount
of inflows in October 2014. Post September’s muted activity, FIIs seemed to have returned to the Indian debt markets
as they poured in nearly | 11367 crore. These inflows supported the rupee from depreciating further against a
strengthening US$ and stabilise near 61 levels in the second half of October. Also, these inflows allowed India’s 10year G-Sec yields to slide to 13-month lows of 8.26%
•
FII flows are likely to remain a key factor, which would determine the direction of Indian equities, debt & currencies in
the near future
FII flows into Indian equity and debt segment
28996
30000
13906
11910
10000
12152.9
10132
7207
7219
3213.06
-252
0
-10000
19009
18370
18149
20000
17773
13331
14360
9470
6986
11367
8894
4616
2155
6358
4587
219
C
-4881.47
-6088
-9497.8
-9809.9
-11740
-12898.6
-20000
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Equity
Mar
Debt
Source: Bloomberg, ICICIdirect.com Research
7
Apr
May
June
July
Aug
Sep
Oct
FII flows in EMs: Indonesia, Turkey, Brazil and India’s debt markets see good inflows…
FIIs flows into EMs equity & debt markets: Significant reduction in net inflows seen among EMs equities while debt
markets witnessed considerable inflows…
•
Till August 2014, despite dealing with geopolitical risks and instability, FIIs continued to favour EM equity and debt
markets. However, growing caution towards investing in riskier assets and increasing currency risk due to US dollar
strengthening forced FIIs to avoid equities of emerging economies. Though September’s absence in debt segment
was not felt in October as few EM’s debt segments witnessed considerable FIIs inflows. Among them, Indonesia,
Turkey, Brazil and India’s debt markets saw good inflows. This actually has allowed currencies like rupee, Rupiah, Lira
to appreciate even when currencies of developed economies like euro, GBP, JPY weakened significantly vs. US dollar.
•
Along with debt markets, FIIs presence in EM’s equity segment is likely to determine health of their currencies in near
future
FII net flows into equity segment
Turkey
1,930.00
-189
South Africa
509.2500219
Brazil
-443.23
Thailand
-585.09
-497.23
MTD
3,091.29
Turkey -144
YTD
South Africa
9,183.96
11,453.52
264.11
Thailand
777.00
-5.96
Philippines
Indonesia
-261.086
India
-165.18
558.00
Indonesia
3,966.32
13,648.50
0
3,000
6,000
In Millions
9,000
12,000
15,000
Source: Bloomberg, ICICIdirect.com Research
8
India
-2,000
MTD
YTD
386.19
81.7
Brazil
Taiwan
-3,000
FII net flows into debt segment
26,491.16
4,587.60
6,296.14
115.6
19,000.00
2638.6
22,535.66
2,795.30
3,000
8,000
13,000
In Millons
18,000
23,000
28,000
Ten
year-two
year yield
shrinks
as inflation reported in October cools off sharply ….
Deal
Team
– Atspread
Your
Service
•
Yield spread remained subdued : Post the inflation
reading in the second week of October, the yield on the
long dated 10 year G-sec fell sharply from 8.48 to 8.2 (13
months low). A similar cool-off was also seen in short
dated maturities as well and the two year G-sec fell from
8.39 to 8.16. As a result, the yield spread contracted a little
bit.
Ten year-Two year yield spread
10yr-2yr yield spread
0.7
0.6
0.5
0.4
0.3
0.2
0.1
Normalised yield curve
8.7
India G-sec yield curve
8.6
8.5
8.4
8.3
8.2
Source: Bloomberg, ICICIdirect.com Research
9
G-Sec 9 Yr
G-Sec 10 Yr
India G-sec yield curve
G-Sec 8 Yr
G-Sec 7 Yr
G-Sec 6 Yr
G-Sec 5 Yr
G-Sec 4 Yr
G-Sec 3 Yr
8.1
G-Sec 2 Yr
The bond bullishness is also reflected in the banking
segment stocks, which are trading at record highs. The
profit on the bond portfolio is set to rise in the coming
quarterly numbers.
G-Sec 1 Yr
•
10/29/2014
10/15/2014
10/1/2014
9/17/2014
9/3/2014
8/20/2014
8/6/2014
7/23/2014
7/9/2014
6/25/2014
6/11/2014
5/28/2014
5/14/2014
The sharp contraction in the yields to 13 months low is
pushing the rate cut hopes and the rate cut could come in
earlier than most participants believe.
-0.1
4/30/2014
•
0
4/16/2014
A cool-off in inflation has brought back the bullish bond
traders strongly and FIIs inflow in the debt segment is
close to US$2 billion in October
4/2/2014
•
With strengthening US$, developed countries’ currencies weaken further… INR displayed
strength against US$ throughout the month and outperformed peers
•
As the US dollar continued to strengthen in October 2014
as well, currencies of developed economies also continued
to bleed, where GBP & euro depreciated by 1.34% & 0.84%.
Japanese Yen weakened significantly to its 3 year lows of
112, down 2.44%. After an extended weak move in first half
of October, Indian Rupee witnessed recovery supported by
FIIs inflows and posted 0.64% gains over month.
Currency
Current Last month
Absolute Change (%)
Status
UK
1.600
1.621
-1.34%
Depreciated
Germany
1.253
1.263
-0.84%
Depreciated
Japan
112.320
109.650
2.44%
Depreciated
India
61.365
61.758
-0.64%
Appreciated
Equity Indices
•
•
In October 2014, Indian equities outperformed most global
peers, gaining 4.5%. In the month US and Japanese equity
benchmarks too gained 2.3% & 1.5% respectively, while UK
and Germany’s equity benchmark dipped by 1.15 & 1.55%
respectively.
In October long dated 10-year G-sec yield of most global
countries declined. Among them, the Japan and Germany
fell by 15.9% & 12.6%, while yields of US and UK too
declined considerably. India’s 10-year G-sec yield fell by
2.8% to 13 month lows of 8.28%.
Current
Last month Absolute Change (%)
US
2018.05
1972.29
2.32%
UK
6546.47
6622.72
-1.15%
Germany
9326.87
9474.3
-1.56%
16413.76
16173.52
1.49%
8322.2
7964.8
4.49%
Japan
India
Bond Yields
Current
Last month
Absolute Change (%)
US
2.335
2.489
-6.57%
UK
2.247
2.425
-7.92%
Germany
0.841
0.947
-12.60%
Japan
0.458
0.531
-15.94%
India
8.280
8.514
-2.83%
Source: Bloomberg, ICICIdirect.com Research
10
India vs. emerging economies: India & Turkey outperformed peers…
•
Even after further strengthening of US dollar, currencies of
many emerging economies appreciated against the same as
FIIs favoured some debt markets to park their money. Due to
this South African Rand and Turkish Lira appreciated over
2%, while Indian Rupee, Indonesian Rupiah and Philippines
Peso too appreciated. On the other hand, Brazil’s Real and
Thailand’s Baht weakened during October series.
Currency
Current Last month
Indonesia
Philipines
Brazil
South Afric
Turkey
Thailand
India
12085
Absolute Change (%)
Status
12188
-0.85%
Appreciated
44.88
44.965
-0.19%
Appreciated
2.4778
2.4469
1.26%
Depreciated
11.0395
11.2853
-2.18%
Appreciated
2.2229
2.2782
-2.43%
Appreciated
32.6
32.431
0.52%
Depreciated
61.365
61.7575
-0.64%
Appreciated
Equity Indices
•
Equity markets of emerging countries displayed mixed
performance. Among them India and Turkey’s Equity
benchmarks gained significantly (7.5% & 4.5% respectively),
while the same of Brazil and South Africa too rose just under
1%. On the flip side, equities of Indonesia, Philippines and
Thailand witnessed some profit taking and lost near 1%
during the month.
Current
Last month Absolute Change (%)
Indonesia
5089.547
5137.579
-0.93%
Philipines
7215.73
7283.07
-0.92%
Brazil
54628.6
54115.98
0.95%
South Africa
44384.99
44160.31
0.51%
Turkey
80579.66
74937.81
7.53%
Thailand
1584.16
1585.67
-0.10%
8322.2
7964.8
4.49%
India
Bond Yields
•
In October, the 10-year G-Sec yield of most EMs witnessed a
decline. Among them the same of Brazil and Turkey dipped
by 11.2% and 12.9%, while others including India, Indonesia,
Philippines, Thailand and South Africa too declined
noticeably.
Current
Last month
Absolute Change (%)
Indonesia
7.996
8.474
-5.64%
Philipines
4.1127
4.3475
-5.40%
0.841
0.947
-11.19%
7.9
8.322
-5.07%
Brazil
South Africa
Turkey
8.465
9.72
-12.91%
Thailand
3.332
3.547
-6.06%
8.28
8.514
-2.75%
India
Source: Bloomberg, ICICIdirect.com Research
11
Any sustainable short covering can be seen only above 5530. On downsides, selling
Global Snapshot (as on Nov 07, 2014)
pressure may aggravate below 5350…
Current Price
Weekly Returns
Monthly Returns
8337
2.05%
6.17%
DJIA
17554.47
2.09%
4.99%
NASDAQ
4638.469
1.58%
5.78%
S&P
2031.21
1.83%
4.97%
CAC
4232.91
2.21%
0.56%
DAX
9410.53
3.24%
3.57%
FTSE
6601.46
2.13%
1.63%
NIKKEI
16880.38
7.81%
6.95%
KOSPI
1939.87
-0.97%
-1.67%
NYMEX CRUDE
77.95
-3.91%
-12.27%
BRENT CRUDE
82.67
-4.14%
-10.25%
1144.25
-4.55%
-5.35%
8.218
-0.83%
-2.77%
8.2
-0.77%
-2.30%
2.3838
3.38%
1.91%
88
2.15%
2.72%
1.2392
-1.75%
-2.19%
NIFTY index
Gold
G-Sec 10 YR YIELD
G-Sec 2 YR YIELD
US 10yr yield
DOLLAR INDEX
Euro
Source: Bloomberg, ICICIdirect.com Research
12
Forthcoming
Events–and
Deal Team
AtTriggers
Your…Service
•
•
•
•
•
India:
07 Nov : Local Car Sales
10 Nov : Exports & Imports
12 Nov : CPI & Industrial production
14 Nov : Wholesale Prices
28 Nov : GDP & Fiscal Deficit INR Core
•
•
•
•
US:
17 Nov : Empire Manufacturing & Industrial production
18 Nov : PPI
25 Nov : GDP & Core PCE
26 Nov : New home sales
•
•
•
•
Euro zone:
12 Nov : Industrial Production
14 Nov : CPI & GDP
27 Nov : Consumer Confidence and PMI Manufacturing, Services & Composite
28 Nov : CPI & Unemployment Rate
•
•
•
•
Japan:
11 Nov : BoP current account
13 Nov : Industrial Production
17 Nov : GDP
19 Nov : BoJ 2014 Monetary Base Target, Jobless Rate & CPI
•
•
UK:
06 Nov : Industrial & Manufacturing Production & BoE Bank Rate
14 Nov : CPI, PPI and RPI
13
Portfolio allocation in Derivatives Products…
Trading Portfolio allocation
•
•
•
•
It is recommended to spread out the trading corpus in a proportionate manner between the various derivatives
research products.
Please avoid allocating the entire trading corpus to a single stock or a single product segment.
Within each product segment it is advisable to allocate equal amount to each recommendation.
For example: The ‘Daily Derivatives’ product carries 2 intraday recommendations. It is advisable to allocate equal
amount to each recommendation
Allocation
Products
Return Objective
Product wise Max allocation
allocation
per stock
Frontline Mid-cap
stocks
Number of Calls Stocks
Duration
Daily Derivatives
5%
2-3%
2 Stocks
1%
2-3%
Intraday
Weekly Derivatives
10%
3-5%
2 Stocks
3-5%
5-7%
1 Week
High OI stock
5%
2-3%
2-3 Stocks
5-7%
7-10%
1-2 Weeks
Monthly Derivatives
15%
3-5%
4-7 Stocks
7-10%
10-15%
1 Month
Global Derivatives
5%
2-3%
1-2 index strategy
-
-
1 Month
Stock Trader/ Stock in Focus
15%
2-3%
5-6 Stocks
7-10%
10-15%
3 Months
Alpha Trader
5%
2-3%
2-3 Alpha strategy
5%
-
3 Months
Volatility Insights
5%
2-3%
1-2 Strategy
8-10%
10-15%
1-2 Month
Arbitrage Opportunity
5%
2-3%
2-3 Stocks
> 2.5%
Positional / Daily Futures
10%
2-3%
8-12 Stocks
1-3%
2-5%
1-14 days
Index option & Strategy
10%
3-4%
2-5 Nifty
2-3%
-
1-14 days
Stock option & Strategy
5%
3-4%
2-8 Stocks
-
3-5%
1-14 days
Currency Futures
5%
3-4%
3-5 Calls
-
-
Intraday
>2.5% Event Based
Pankaj Pandey
Head – Research
[email protected]
ICICIdirect.com Research Desk,
ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road no.7, MIDC
Andheri (East)
Mumbai – 400 093
[email protected]
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