Rupee poised to test all-time lows: Jai Bala

Technical analyst Jai Bala of cashthechaos.com says the market was throwing contradictory signals a few weeks ago, with the Indian currency poised to test its all-time low.

The rupee fell below the key psychological level of 56 to the dollar on Thursday, its lowest level in over 8-1/2 months, as the dollar rallied on worries about a potentially early end to US monetary stimulus.
Bala says the tight inverse correlation between the rupee and the equity markets is likely to make a comeback. "If that were happen, it will be very bearish for the equity market," he says. 
In the extreme short-term, the dollar index is looking overbought. However, Bala believes the index will go much higher than what people are anticipating in the next three-four month's time frame. "I have a price projection of about 88-90 in the medium to long-term," he told CNBC-TV18. 
He says the market has been ignoring the strength in the dollar index for quite sometime. But he says now that the Japanese currency bond has started to strengthen, that will probably start to tell on the market.
"If you look at the monthly charts of the Japanese government bond, it broke a trendline from 2006 to 2013. So there was a warning as early has last week. So what’s happening now isn't much of a surprise. I am a bit disappointed that I didn’t act on it in a bigger way," he explains.
The Japanese markets recovered a tad after cracking 6 percent. The sell off comes on disappointment that the central bank offered no solutions or firm statements on recent yield rises and market turbulence at the end of its two-day policy meeting. The Japanese 10-year yield, already aggravated by the overnight rise in US treasuries briefly touched 1 percent – a 52 week high. Hang Seng and China too are under pressure as the HSBC Flash Manufacturing PMI for China indicated contraction for the first time in 7 months. On Nifty  
Bala expects a snapback to come through. "If that snapback happens to be much lower than the top it made of 6,220-6,230, then that will be a good selling opportunity. It is prudent to wait for that reaction to come through," he advises.
He says real estate, capital goods and metal stocks look quite vulnerable to downside hereon.