Dollar on a dream run

"A dollar saved is a quarter earned." - John Ciardi.

It’s a nightmare out there for most asset classes. Barring the dollar, almost all asset classes are down and cash seems to be the safest bet at the moment. The euro slumped below $1.30, an 11-month low, after Italy's borrowing costs surged. The dollar index is ruling well above 80. Brent crude has cooled off a bit after OPEC raised its output ceiling. Gold has slid below $1600. The yellow metal is below its 200-DMA for the first time in almost three years.

US stocks fell for a third straight day on worries about the euro area debt crisis and disappointment over Fed inaction. US treasury prices gained, pushing 10-year yields further below 2%, after strong demand at an auction of 30-year bonds. European stock indices were deep in red as well. Most Asian markets are also down this morning with Hang Seng pacing the decline.



That’s the world for you this morning. It’s a no-brainer that the opening back home will be weak yet again. The drop in inflation had limited impact on Indian shares. Food inflation data will be tracked closely. The RBI may refrain from any immediate policy action tomorrow but could hint at easing going forward. The central bank statement will be very crucial.

Meanwhile, Federal Reserve Board Chairman Ben S. Bernanke has reportedly told Republican senators that he is concerned about ‘European sovereign debt problems spilling over to the US economy.'

A big headache for Indian policymakers at the moment is the unrelenting slide in the rupee. With the dollar in great demand and macro-economic fundamentals weak, the pressure is likely to continue on the Indian currency. That may, in turn keep FII inflows depressed. In short, things could worsen before they start looking up again. So, brace for some more volatility and uncertainty.

The Nifty failed to cross 4840, which turned out to be the pivot point for the rally from 4638 to 5100. The next immediate support for the Nifty is placed at 4710. Selling pressure could escalate if it breaks below this level.

FIIs were net sellers of Rs 1.4bn (provisional) in the cash segment on Wednesday, according to NSE data. The domestic institutional institutions (DIIs) were net buyers of Rs 4.49bn on the same day.

The foreign funds were net sellers of Rs 1.90bn (provisional) in the F&O segment on Wednesday, NSE data shows.

FIIs were net sellers at Rs 4.89bn in the cash segment on Tuesday (Dec. 13), according to SEBI web site. Mutual funds were net buyers at Rs 780mn on the same day.

Global Data Watch: Japan Tankan manufacturing survey, Australia's new vehicle sales, China HSBC Flash manufacturing PMI, Swiss National Bank policy meeting, Germany flash PMIs, Eurozone flash PMIs, ECB monthly report, UK retail sales, Eurozone employment report, US PPI data, New York Empire State manufacturing index, US weekly jobless claims, US current account, US industrial production and US Philadelphia Fed manufacturing survey.