THE EMERGING FOREX

The frantic call index has spiked again, as the number of Forex queries has suddenly shot up at Orpheus. And, as always, the queries poured in from multiple regions. We have had queries from India and a few from Europe. It all seems to have a kind of inflexion psychology linked more to an emerging forex collapse. One member said, “If the currency crashes, foreigners will desert the country, complicating matters.”
These worries take on a different tone regionally. The Indian concern seems to stem more from equity side. If equity collapse is here and large blue chips are going bankrupt and are delisted, the currency is definitely going to take a hit as confidence in the country decreases.
Well! on one side we do concur with the reasons highlighted, but on the other side the issue of timing is totally out of sync. Equity market collapse and currency collapse generally happen together, as we have detailed on prior occasions. The equity collapse is more than 15 months old in many emerging markets, more than 12 months in India. The currency collapses also took a similar time. So the worries, are definitely mistimed as mass psychology gains momentum and starts to shift to the other extreme. For us at Orpheus the structural economic problems still lie more on the developed economies front, and not in the emerging Forex. This is the very reason, why thinking about an emerging collapse is premature. Secondly, readers of WAVES.FOREX are well aware of our 17 Jan 07 call on Yen and the 04 FEB 2008 issue, when we talked about the DOLLAR 2012 scenario. It was in on 4 Feb we said. “Fractal projections point to 1.85 for EURO Dollar. This is 24% further weakening from here. On the short term though we could be in for a fall till 1.43 and possibly till 1.41. We don’t see more strengthening on dollar than this. Yen on the other hand has been a text book case for us. It was here on 17 JAN 2007 we said that the USD/YEN ratio line broke the 22 year trend line suggesting that YEN is ready to move out of inaction and head to potentially below 80 (33% strengthening). This was the time market was debating about the effect of BOJ (Bank of Japan) keeping interest rates unchanged. As usual there were three views, up, down and sideways. For us at Orpheus the fractal was decisive. Well we have reached near 100, which means half of our target has already been met in about 13 months.”
It was here in WAVES.FOREX we caught the big move on British Pound, much before the news emerged. It was here we caught moves on EURCHF, CHFRON, HRK, HUF, Canadian Dollar, and Lei. The Romanian lei is the pair we started tracking since 2005. We anticipated the move down till 3, 13 month before Bloomberg News on Eurron being the strongest pair in the world. And on 04 Feb along with Dollar we mentioned about the LEI scenario back up to 4. We also carried an update on 13 Oct 2008, when we carried ‘Is Eurron Flat normal or expanded?’. Prices have hit anticipated targets above psychological 4 and is now at historical high at 4.17. The normal flat scenario targets are met. Now we have to see whether the flat could expand till 4.5 or not. At this stage expanded flat looks a low probability scenario to us and we continue to look at a reversal here. But we are aware that expanded flats are more normal than normal flats, as extremes in psychology is more normal than a balanced sentiment. Momentum (SLIDE1) continues to suggest a non confirmation and that our preferred reversal might stand here. But we will wait for a clear push below 3.9 to calling the TOP in. A similar scenario looks plausible on INR, which seems also to be topping. We have also updated the other pairs, anticipated and happened cases and have carried an updated tracker on Emerging Forex and the rest of the global pairs. Enjoy the latest WAVES.FOREX.
The current sentiment also reminds us of the view against dollar when doubts were being raised regarding its strength and sustainability of the trend. The surprise element was strong is what we had indicated in the ‘The dollar and asset price movements’ article (September 1) last year. In it we said, “Though immediate targets for dollar lie near 1.45 levels (EUR-USD), we are anticipating a multi-month of strengthening back to January 2005 levels of sub-1.4.” This was at 1.47 levels. Prices fell to a low of 1.23 levels and are now ruling near 1.35.
What happens to dollar from here should tell us a lot about the world economy, about commodities, about global equities etc. Coming from an alternative research thought process that assets are linked with performance cycles and performance and underperformance itself is cyclical, one can even look at the Indian rupee, Romanian lei, Hungarian forint, the Croatian kuna and other emerging forex pairs to understand how much low we are going to go on emerging equity before the multi-month bounce on depressed assets start.
We feel emerging market forex leads the world equity markets and depressed historical lows on the Indian rupee could not have come at a better time for a turnaround. The negativity linked with job losses, accounting frauds, metals collapse, billionaire suicides and governor impeachment suggest a sentiment extreme to us. One should also keep in mind that accounting frauds don’t generally get detected at market tops, but at market bottoms, when inefficiencies really show.
On the other hand, there are potential scenarios for dollar to see a retest of previous levels near 1.23, and maybe push till parity. But it’s the time factor that challenges further dollar strengthening beyond Q1, 2009. Moreover, Oil seems to have turned up, Gold is nearing a bottom any time in the next few weeks and Kitchen cycle lows on global equity seem to be in place.
Dollar should be nearing a large reversal for the next four years. Dollar 2012 at 1.85 is what we are looking at. The rupee back at 38 and dramatic strengthening back on other emerging pairs also pushes us towards the contrarian zone. But the rupee topping and reversal is what we see. We may be wrong and will review when needed.
Making peace with loss is a tough task. This is why more than financial planners we need psychiatrists. Whether Raju’s frank statement robs Satyam of the Golden Peacock award and the Nifty of a blue chip and us of a potential long-short pair, he was faster to admit the disaster than Rod Blagojevich, who preferred gambling on the impeachment risk. Human beings are loss averse.
We prefer carrying on with losers than accepting that we failed or made a mistake. And timing is an error we as humans continue to do. It’s a matter of choice. We should either choose to admit that we don’t know how to time or we should continue to carry the losers and regret.
Enjoy the latest WAVES.FOREX
[bold]WAVES.FOREX[/bold] is a perspective product published five days a week. The report highlights the top traded FOREX PAIRS (eg. EURO USD, DOLLAR INDEX, YEN USD, Indian Rupee, Romanian Lei, Swiss Franc, Hungarian Forint, Croatian Kuna, Canadian Dollar). The product highlights Primary (Multi Month) and Intermediate (Multi Week) price trends. The report illustrates key price levels, price targets, price projections and time turn windows. The product uses Elliott waves, traditional technical analysis tools and sentiment indicators.
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