Gold, Rupee and Equity Markets Outlook II Explained by ICICI Securities

Gold prices started Wednesday’s trade on a strong note by opening higher with a gap and prices rose further for most of the session till high of Rs 49640. Prices have bounced strongly in the last session as the dollar weakened on U.S. Treasury secretary nominee Janet Yellen's call to "act big" on measures to help the U.S. economy recover from the impact of the pandemic. Therefore, ICICI Securities expect Gold prices to rise further towards Rs 49900 level in the short term.

The Put base at 73 is likely to act as crucial levels for the currency pair as it has remained an important support in the recent past. A move below these levels might open the gates for sharp appreciation. The dollar-rupee January contract on the NSE was at | 73.08 in the last session. The open interest increased by 0.7% in the current series.

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Equity benchmarks extended gains over the second consecutive session amid buoyant global cues. The index steered past its previous high of 14653 and recorded fresh all time high of 14666. The Nifty ended Wednesday’s session at 14645, up 124 points or 0.85%. Market breadth remained positive with A/D ratio of 1.1:1. Barring FMCG, all other indices ended in green led by Auto and IT.
 
Technical Outlook:
 
The daily price action formed a bull candle carrying higher high-low, indicating continuation of ongoing up move as index witnessed follow through strength to last session’s swift up move. As a result, Nifty entirely retraced past four sessions' corrective move (14653-14222) in just two sessions. The faster pace of retracement signifies structural improvement that augurs well for the next leg of the move.
 
Going ahead, ICICI Securities expects index to endure its northbound journey and eventually head towards 14900 by the end of January. Meanwhile, stock specific activity would continue as ICICI Securities proceed Q3 FY21 earnings season. The sturdy move above the previous life-time high of 14653 backed by strong market breadth and broad based market participation has also confirmed a higher bottom in place at Monday’s low of 14200 and signals further acceleration of upward momentum towards our target of 14900.
 
The elevated buying demand highlights robust price structure that makes us confident to retain support base at 14200 as it is 38.2% retracement of current up move (13131-14666) at 14300 coincided with 20 EMA at 14167 and Monday panic low of 14222.
 
In the coming session, volatility would remain high owing to weekly derivative expiry. However, ICICI Securities expects the index to trade with a positive bias while maintaining higher-low formation. Hence, post positive opening use dip towards 14640-14665 for creating a long for target of 14744.