I have been anticipating weakness in Dollar since long. There are two types of corrections: one, price correction; and, another, time correction. Under price correction, as the time passes, prices go on correcting. Under time correction, prices move in a range, but time passes. In case of Time Correction, what would happen afterwards, it becomes very difficult to predict.
In case of USD/INR, since about a year, we have been witnessing time correction and the prices have been in a range of 53.75 - 55.75 barring some small period in between, when we have seen upper and lower spikes as well. Further again, there has been a formation of Symmetrical Triangle in the chart during last 1 1/2 years. This triangle is said to be a neutral triangle in Technical Analysis and hence, very difficult to predict, what would happen afterwards.
In the said circumstances, one has to form a view taking into account all the relevant circumstances and their charts. I have been of a firm view since number of months that Dollar should weaken slowly for next 2-3 years and have given reasons for that as per technical analysis. Some additional fundamental reasons, which should be helping in Dollar weakness, are enumerated below:
i. The Stock market has been bearish / in consolidation trend since Jan 2008 onwards and more than 5 years have already passed since then. As per technical theories, the total trend of the market runs for 5 years bullish and 3 years bearish approximately. We have already passed 3 years bearish from Jan'08 and 2 years of the bullish one afterwards. These 2 bullish years (the beginning ones) have never been clearer to the investors at large and are utilized by the Big Operators only. Thus, now the time has come for bullishness in the stock market for next 24 - 36 months approximately, which should have mass participation, and during this period, we are slated to witness new highs in Sens*x / Nifty as well. Once this happens, USD for sure is to weaken, as having the inverse relationship with the Stock Market.
ii. Gold prices have cracked already. As to me, this was Phase-I only. Phase-II is still due, which should take the Gold prices somewhere in between Rs 21000 - 23000. This should positively impact our economy, as would be helping in lowering the Current Account Deficit (CAD).
iii. Global Oil prices have also started weakening. We had a high of USD 114.83 in May 2011 (Nymex Crude). Afterwards, the next high (lower) was USD 110.55 in March 2012. The prices started correcting and bottomed at USD 77.28 in June 2012. Since then, during last 10 months, the prices are in the range of USD 100 - 84; the last closing is at USD 93. As to me, the prices should still be due for a meaningful correction something in the range of 20-25%, though, it may take some more time in getting this correction, but it should be definitely due as per chart readings. Once this happens, it will also help our economy very well - reduction in CAD, reduction in inflation, reduction in fiscal deficit, etc.
iv. Many of the Banks and Big Industrial Houses have started raising Dollar funds. This will also help in strengthening Rupee.
The only cause of concern is Euro/Dollar, which is taking longer time in getting bullish because of Euro zone own problems. So is the case with Dollar Index. Though there are signs of bullishness in Euro/Dollar and bearishness in Dollar Index, but these are still pre-matured.
Regards,
DS Kapoor
Cost Accountant
CAclubindia
