Long MXNZAR @.8100 stop 0.7900 for 0.8500
Long INRZAR @ 0.1755 stop 0.1710 for 0.1810 and 0.1900
I like to call this the reform trade. The expectations of investors from EM governments to push in new reforms has been higher than ever. Firstly it was Mexico with its oil reforms and recently expectations from Modi's Indian government. The recent trend has been, the inflows to buy Indian equities and bonds with the 'expectation' of change and implementations of new reforms. A similar trend can be noticed in Indonesian equities with the expectations of new government and possible reforms. Later this year investors expectations from Brazil should reflect in Bovespa and BRL.
On a relative basis South Africa is severely lagging in terms of new reforms to kick start the economy or increase investor confidence. SARB is relatively dovish on its monetary stance as growth has fallen. The current account deficit remains a concern when compared to likes of Mexico or even India which has managed to reduce it remarkably.
There is a carry potential on Long INRZAR whereas a slightly negative carry on Long MXNZAR.
The chart above is INR/ZAR Monthlies and it is evident that the pair has found support on the long term support trend line at 0.1750 after consolidating for approximately 5 months and now heads higher to top of the range trend line resistance of 0.1920. My in house models do agree with the setup which is a plus.
The chart below is MXNZAR monthlies. 0.8000 has been a multi year resistance line which has been tested aggressively in 2008-09' but failed to trade above. Last quarter of 2013 the pair finally closed above 0.8000 and since then has been finding support at 0.8000. I think there is potential for 0.8500 for this trade which is the topline resitance. Again my models do agree with the forecast. Overall there lies plenty of scope trading the big range 0.7500-0.8500 depending on the risk profile one has and how he perceives the incoming macro data.
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