The Rupee Scare

rupee scare

There is only one problem here, psychology is prone to reversal, after greed comes fear, and then the cycle repeats.

Scare is an emotional need

Like we need soap operas, we need things to be scared of. Emotions are why we live, so if we don’t have greed and fear, we might not feel alive. This is true with markets. How we interpret indicators (a currency) could also be linked with how psychological we want them to be. Robert Prechter would agree since he believes that social mood drives markets. This should mean even macroeconomic indicators or currency value could be driven by social mood. And, if a 60 rupee-dollar value does not scare us enough markets weakness could continue and vice versa. There is only one problem here: psychology is prone to reversal, after greed comes fear, and then the cycle repeats. So, if you think the rupee has scared us enough, the reversal is round the corner. It might all sound too simple. Actually, markets are very simple. “Simplicity is the most undermined investment technique,” said Garfield Drew.

Indicator as a system

Coming back to the currency. A currency is supposed to be a macroeconomic indicator, which is a true reflection of the economy. How good is this true measurement? We have been taught as technicians that a currency has an inter-market relationship with the local equity benchmark. The currency strengthens the equity benchmark moves higher and vice versa. Ok! It works up to a certain extent. You can see that visually. But are visuals enough? We have doubts about visuals being enough for risk management.

Refining the indicator…

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Mukul Pal, is a Chartered Market Technician, MBA Finance and a member of the reputed Market Technicians Association (MTA). He has more than a decade of Capital Market experience dealing with derivatives and global assets. He has worked for Bombay Stock  Exchange, multinational Banks and brokerage houses in leading research positions before starting on his own in 2005. He is the President of the MTA Central and Eastern European Chapter.


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