Continuing with the commodity theme

Last fortnight's call on a peak in oil prices couldn't have been better timed. Oil prices promptly fell to 135 and recovered to a new high above 147 last week, before collapsing below 129 this week. The next major support is at 121.50 but we expect another attempt to scale 140 before falling there. There is a small risk that the correction from the late May high of $135 till now is a corrective wave iv and wave v - which could last about a month and $25 - is yet to start. The CRB index too presents a similar picture - appearing to have peaked but still leaving one with a niggling feeling about one more pending rally to new highs.

The only way out of this dilemma is to play strength and avoid weakness. Looking at the wider commodity universe, the agri-index reversed from 496 to 420, falling short of the 513 high. Support is at 410 and there is still a strong chance of a new high being recorded. Soybean, sugar, and wheat have shown relative strength during last fortnight's fall and present a low-risk buying opportunity. Precious metals are undoubtedly our preferred asset class right now, while base metals should be avoided. Equity indices turned around last week and are a trading buy for the next few weeks.

USDINR (42.78)

Sentiment on the rupee finally seems to have turned as dollar rallies are being sold. The rupee rose to 42.66, the highest level in July, on Friday and a successful vote of confidence Tuesday should help it push closer to 42 this fortnight. Upside for the pair should be restricted to 43.15. In the event, the vote of confidence fails, we could see renewed nervousness. Be careful.

EURUSD (1.5848):

Euro hit a low of 1.5610, above our stop of 1.56 and then rose to a record high of 1.6040 before correcting to 1.5785. After tracing out a series of 1's and 2's, it's about to break out in a dynamic 3rd of 3rd wave which should be a 600-pip move. We recommend staying long with a stop at 1.5775 - if that breaks the next major support is at 1.5670 where the position should be re-established.

GBPUSD (1.9985):

Cable broke through our stop at 1.97 and made a low of 1.9645 before rallying 510 pips to peak with the release of CPI inflation, which came in at a record 3.8%. It has managed to stay above the 200-day SMA for four consecutive days and is set to break the March high of 2.04 shortly with 1.99 acting as strong support.

USDJPY (106.95):

In a highly volatile week, the pair fell 250 pips to 103.76 before rallying above 107. For the past five weeks, the pair has consolidated below the 200-day SMA while receiving support from the 21-week SMA at 103.90. With the dollar's decline having resumed, chances of a breakdown have increased. Incidentally, the pair's direct relationship with the Dow has been re-established over the past three days but should be treated with caution given the de-linking since late May.

USDCHF (1.0230)

The pair has been gently sloping down since early May with recent rallies reversing from the downward sloping 50-day SMA which is currently at 1.0304. We expect the decline to accelerate into the first week of August.