Rupee may fall further; gold at $1030/oz likely: Barclays

The Indian currency, which has been one of the worst performers against its Asian peers is likely to see more weakness in the near-term, says Dhiren Shah, technical analyst, Barclays. The rupee opened at 60.02 on Friday and later appreciated by 34 paise to 59.84 per dollar.

From the other asset classes, Sarin says gold may fall to as low as USD 1030 per ounce after the metal breached the USD 1200 mark, for the first time in three years.

"Anywhere after test of about USD 1,150-1,100 per ounce, we would start to look for a base, bargain hunting will begin once again. So let’s stay bearish for the time being," adds Sarin. Below is the edited transcript of Sarin's interview to CNBC-TV18. Q: The Nifty went back to those 5600 levels. It was a swift 600-700 point drop in the index and now we are seeing a pullback. How are you looking at this phase in the market for the index? A: Earlier, we were bearish on the Nifty and this was a few weeks ago. We did hit important areas or just short of it around 5500-5470. Those are the lows of the year in the Nifty and are very key levels. We have held that for few times. Now, we are standing aside at this point. We have had the down move, we are getting a bit of correction, consolidation where we can assume that there is more upside in store if the least Nifty can get up above 5870. This should open some 100 odd points to the topside. But even in that scenario, our greater view is that emerging markets do remain largely undermined. Q: All of these ties in with the currency moves as well. What is it that you foresee for the rupee and for the dollar index? A: The rupee is one of the worse performing currencies in Asia. We think there has been a distinct reallocation of assets away from India from foreign investors. We are seeing the depreciation of the rupee, not just against the dollar but against other Asian currency peers as well. It has been an interesting move. We have taken out 60 which is a psychological hurdle and broken to new highs for the year. Medium term, dollar-rupee undoubtedly is in an uptrend. In the 1980’s, it was much lower. Ever since then, we have been heading higher. So, it is quite feasible to look at higher prices into next year. But in the near term, volatility tends to pick up when you break to new highs. This is exactly what we are seeing right now. We are seeing a pull back in dollar-INR. It is very consistent with erratic moves when we question the highs. Ultimately, dollar-rupee should still head higher. Q: Emerging market equities have gone through hell in the month of June. Do you think the medium term chart patterns are now beginning to look disturbing that they could be getting into a deeper bear market kind of situation? A: Emerging markets have been bearish but they have not jumped over the cliff yet. One of the key one could watch is the Nifty at 5470. That is a very key level. If that breaks then EMs will start to underperform. Infact, the Indian market is one of the better ones to watch from an EM context given that the Indian assets have been performing quite poorly across the board whether it is rates, equities, or currency. Now, it has not jumped yet so we aren’t aggressively bearish but, we do think that the best trade is playing it from a relative perspective where US equities outperform EM equities and that’s the best way to position for investor. _PAGEBREAK_

Q: Emerging market equities have gone through hell in the month of June. Do you think the medium term chart patterns are now beginning to look disturbing that they could be getting into a deeper bear market kind of situation?
A: Emerging markets have been bearish but they have not jumped over the cliff yet. One of the key one could watch is the Nifty at 5470. That is a very key level. If that breaks, then EMs will start to underperform. Infact, the Indian market is one of the better ones to watch from an EM context given that the Indian assets have been performing quite poorly across the board whether it is rates, equities, or currency. Now, it has not jumped yet so we aren’t aggressively bearish but, we do think that the best trade is playing it from a relative perspective where US equities outperform EM equities and that’s the best way to position for investor. Q: Just for India, it didn’t break that 5470 mark as has happened in the past. It has threatened to do it but never really gotten there. Technically, what does that suggest to you on that whole higher top, higher bottom theory? Is the market displaying resilience around this level or would you read it differently?
A: It is undoubtedly resilient as far as it is above that level. The only point where we can turn more bearish is if that breaks. Until then, there is no reason to think of doom and gloom. The market is fairly stable. We just have to monetise topside levels now around 5870. The key here is, we are also entering the northern hemisphere summer when liquidity starts to deteriorate in western markets. The non-farm payroll is expected next week and it is also the July 4 holiday in the US. So, from a risk sentiment perspective, a global perspective, this is probably not the time to have an aggressive view on either direction but we do watch these levels at the same time. Q: What have you made of the complete collapse in gold? It is now flirting with USD 1,200 per ounce mark on the way down. Is it supported around these levels or can you see more technical damage?
A: Over the last quarter, with this as quarter end, we have seen the strongest decline in our charts. So, going back from the 70’s, we have seen about a 25 percent decline in gold just in this quarter. Is there more to go, I would think, yes. But the bulk of the move is likely done.
This has been an uptrend for 10 years plus and a lot of position liquidation for the medium term bulls has already been seen in our view. We are looking towards USD 1,080 per ounce as the downside. Potentially, USD 1,030 per ounce is the peak before the credit crisis. But anywhere after test of about USD 1,150-1,100 per ounce, we would start to look for a base, bargain hunting will begin once again. Let’s stay bearish for the time being.