DAILY MARKET COMMENTARY

Fundamental Outlook at 1500 GMT (EDT + 0500)

€

The euro lost ground vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.4830 level and was capped around the $1.5015 level. The market was quite volatile on account of a few factors. First, traders remained skittish and attentive to the Dubai World situation. Dubai’s largest corporate entity on Wednesday asked creditors for a six-month standstill agreement on debt repayments. The entity’s total liabilities aggregate around US$ 60 billion and there are some concerns that other emerging market debtors could experience similar problems through contagion. Premia for emerging market debt in the fixed income market have increased over the past two days. The U.S. dollar has really been on the back-end on a trading strategy that has been long risk and short the greenback for several months. The paring of risk that has been associated with the Dubai situation could positively impact the U.S. dollar. Second, traders are closely watching the yen and any potential Japanese response to the yen’s recent appreciation. Third, liquidity was reduced during the North American session on account of yesterday’s Thanksgiving Day holiday. Data released in the U.S. today saw October building permits revised to -4.2% from -4.0%. Data to be released on Monday include the November Chicago purchasing manager index. In eurozone news, European Central Bank member Ordonez said the “euro interbank market…has suffered greatly” as a result of the global financial crisis. Data released in the eurozone today saw November industrial confidence rose to -19 from -21 while November economic confidence improved to 88.8 from 86.1. Also, November consumer confidence increased to -17 from -18 in October. Additionally, the October import price index rose 0.5% m/m and was off 8.1% y/y. Euro bids are cited around the US$ 1.4720 level.

¥/ CNY

The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥87.00 figure and was supported around the ¥84.85 level. The pair rallied higher from multi-year lows dating to 1995 as traders booked profits on their short yen positions. Nervousness increased regarding the possibility of yen-selling intervention by Japanese and foreign monetary authorities. Finance minister Fujii noted “this kind of situation is sustained, I think that it would be something abnormal. It would be possible for us to take” action. Fujii added he is “extremely nervous and is watching the market carefully…there’s no doubt the market has moved too far in one direction.” While some dealers do not believe the Japanese government will conduct yen-selling intervention at current levels, Japanese exporters are finding it more difficult to grapple with the yen’s ascent. Chief Cabinet Secretary Hirano reported “Excessive moves are undesirable. The government will monitor the impact of the currency market on the economy. We'll make sure that the yen rise will not lead to a second bottom in the economy, and the upcoming extra budget will be compiled with such risk in mind.” Data released in Japan overnight saw the October overall retail sales index off 0.9% m/m, better-than-expected, while October core consumer price inflation was off 2.2% y/y. These data suggest deflation could continue in Japan for quite some time. Also, the October jobless rate improved to 5.1% from September’s reading of 5.3% while October all household spending was up 1.0% m/m and +1.6% y/y. Finally, Japan’s trade deficit printed at ¥126.81 billion in the first ten days of November, off 2.1% y/y. The Nikkei 225 stock index lost 3.22% to close at ¥9,081.52. U.S. dollar offers are cited around the ¥94.75 level. The euro moved lower vis-à-vis the yen as the single currency tested bids around the ¥126.85 level and was capped around the ¥130.15 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥139.25 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥84.20 level. In Chinese news, the U.S. dollar depreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8264 in the over-the-counter market, down from CNY 6.8270. People’s Bank of China Deputy Governor this reported the yuan will become a “more attractive currency” and added the central bank will increase surveillance of hot money flows. Vice Foreign Minister Zhang Zhijun this week said China will “increase the flexibility of the yuan exchange rate while maintaining stability in the market,” adding the increase will be “incremental and balanced.” Zhang added China is moving toward a system “that is market-based and is a managed floating mechanism with respect to a basket of currencies.” Chinese Premier Wen Jiabao will meet European Central Bank President Trichet and Ecofin head Juncker on 29 November. China’s banking regulator informed Chinese lenders they must comply with capital requirements or risk sanctions. There is increasing speculation China will strengthen its strict capital requirements.

₤

The British pound came off vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.6270 level and was capped around the $1.6520 level. Sterling has come off about 300 pips over the past three trading days as dealers have reacted to the Dubai debt market shock. Bank of England Monetary Policy Committee member Posen reported wholesale reform is needed if the U.K. banking system is going to mount a sustainable recovery. Chancellor of the Exchequer Darling downgraded the U.K.’s 2009 economic growth outlook today and now sees shrinkage of 4.75%, worse than the previous -3.75% forecast. Cable bids are cited around the US$ 1.6155 level. The euro moved lower vis-à-vis the British pound as the single currency tested bids around the ₤0.9060 level and was capped around the ₤0.9135 level.

Technical Outlook at 1330 GMT (EDT + 0500)

(Bid Price) (Today’s Intraday Range)

EUR/ USD 1.4957 1.5015, 1.4828
USD/ JPY 86.78 87.01, 84.83
GBP/ USD 1.6490 1.6519, 1.6270
USD/ CHF 1.0072 1.0176, 1.0020
AUD/USD 0.9056 0.9135, 0.8945
USD/CAD 1.0627 1.0747, 1.0579
NZD/USD 0.7085 0.7165, 0.7022
EUR/ JPY 129.79 130.14, 126.86
EUR/ GBP 0.9071 0.9133, 0.9058
GBP/ JPY 143.08 143.48, 139.26
CHF/ JPY 86.16 86.40, 84.22

Support Resistance Support Resistance

EUR / USD USD / JPY
L1. 1.4470 1.4915 88.60 93.30
L2. 1.4355 1.5140 87.10 95.50
L3. 1.4175 1.5360 86.10 98.85

GBP / USD USD / CHF

L1. 1.6115 1.6685 1.0275 1.0580
L2. 1.5720 1.6830 1.0040 1.0695
L3. 1.5405 1.7040 0.9750 1.0885

AUD / USD USD / CAD

L1. 0.8450 0.8830 1.0535 1.0945
L2. 0.8300 0.9050 1.0365 1.1125
L3. 0.8070 0.9120 1.0155 1.1355

NZD / USD EUR / JPY

L1. 0.6880 0.7125 131.45 135.75
L2. 0.6750 0.7260 129.75 136.90
L3. 0.6535 0.7395 127.00 138.75

EUR / GBP EUR / CHF

L1. 0.8795 0.8995 1.5110 1.5380
L2. 0.8675 0.9105 1.4905 1.5580
L3. 0.8320 0.9225 1.4670 1.5880

GBP / JPY CHF / JPY

L1. 146.10 152.50 86.30 88.65
L2. 142.05 157.75 85.40 90.10
L3. 135.70 161.70 81.55 91.60

SCHEDULE

Friday, 27 November 2009 all times GMT
(last release in parentheses)

N/A Germany October import price index (-0.9% m/m)
N/A Germany October import price index (-11.0% y/y)
N/A Eurozone November Ifo business climate survey
0745 France November consumer confidence (-35)
0900 Italy October hourly wages
1000 Eurozone November economic confidence (86.2)
1000 Eurozone November business climate indicator (-1.78)
1000 Eurozone November consumer confidence (-18.0)
1000 Eurozone November industrial confidence (-21.0)
1000 Eurozone November services confidence (-7.0)
1030 CH November KOF leading indicator (1.45)
1330 Canada Q3 current account (-C$ 11.2 billion)

DISCLAIMER: Daily Market Commentary is provided for informational purposes only. The information contained in these reports is gathered from reputable news sources and is not intended to be used as investment advice. We assumes no responsibility or liability from gains or losses incurred by the information herein contained.

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Derivatives Action indicates cautiousness going ahead

THE WEEK THAT WAS
The long build up in the December 2009 series was completely reversed during the expiry day, and there would be immense volatility in the current week with downward bias

After having an excellent November series during which the market rose 255 points to close at 5005.55 on the expiry date of the November series, the market tumbled on 27th November 2009 mainly due to the concerns from the Dubai debt restructuring related concerns and its consequent impact on the Indian Banking, real estate and the construction majors. The Nifty corrected 63.80 points to close at 4941.75 on Friday, the 27th November 2009.
All through-out the month the market fared well although on the expiry day of the November series aggressive short positions were being witnessed both in the Nifty futures as well as most of the front-line stock futures for the December series. On this day the Nifty December series ended with discount of 25 points to the underlying. Such heavy short build-up in the December series shows cautious outlook going ahead. The nifty December contract added 30.77 lakh shares in open interest (OI) to take the total OI to 2.51 crore shares. Similar was the trend in the stock futures as well. Some of the front-lines like Reliance Industries added 12.62 lakh shares in OI in the December series. So does in Tata Motors and Tata Steel, where the OI in the December series rose by 25.02 lakh shares and 27.10 lakh shares respectively. Overall the December series stock future OI increased 29.51 crore shares on 26th November 2009. The rollover for the nifty futures was 71% and the market-wide rollover was 83%. Such aggressive OI addition was due to fresh short positions being created in the Nifty and the stock futures.
Short position continued to get build-up in the December series on Friday as well as the market on this day nose-dived before recovering a major portion during the second half of the day. The Nifty December series further added 9.90 lakh shares in OI to take the total OI to 2.61 crore shares. Similar was the case in case of several stock futures as well. The overall December series stock futures added 15.58 crore shares in OI during Friday, although Reliance shed 76.8 thousand shares in OI whereas Unitech shed 57.78 lakh shares in OI. The total OI for December contract of both these scrip's stood at 1.05 crore shares and 5.30 crore shares respectively. RNRL and ICICI Bank added 2.22 lakh shares and 4 lakh shares respectively in OI to take the total OI to 2.95 crore shares and 1.26 crore shares respectively. Hindalco, Ambuja Cement, IDFC and JP Associates also added significant OI in the December series contracts during Friday.
Overall the market wide OI on Friday stood at 150.67 crore shares, thus gaining by 6.09 crore shares as compared to the previous trading day. A major portion of the addition was done by stock options which added 3.39 crore shares in OI. (See table OI breakup
Significant amount of calls were written on the expiry date especially in the 5000, 5100 and 5200 strike December series, simultaneously aggressive put buying was witnessed in the 4800 and 4900 strikes. However on Friday 4800, 4900 and 5000 strike calls witnessed aggressive buying as the call wrote during the previous day on the 5100 and 5200 strikes were covered. Also on Friday there was some fresh buying in 4700, 4800 and 4900 strike puts. These positions seem to be a coupled position, which is being taken along with other positions in futures or stocks. Thus any inference may be premature.

The OI in the 4900 and 5000 strike call stood at 24.29 lakh shares and 33.68 lakh shares while the OI in the 4800 and 4900 strike puts stood at 40.96 lakh shares and 28.82 lakh shares respectively.

The Friday's reaction seems to be an over-reaction although the F&O activity during the November expiry day indicates cautiousness. Earlier during the previous week and also during the earlier part of the current week there was long build-up in the December series which has completely reversed during the expiry day. One thing is for certain, that there would be immense volatility with down-ward bias.

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