Friday, August 31, 2012

ICH - Significant implications for the Telecom sector


Karachi Stock Exchange - Pakistan
Our channel checks suggest that the much touted International Clearing House (ICH) mechanism is very close to implementation. The only concerns at the moment are the objections raised by the Competition Commission of Pakistan (CCP), where we expect the Ministry of Information and Technology (MoIT) to amicably address the concerns of CCP. ICH will lead to the revival of the LDI sector in our view and should result in multiple rerating for the sector. While the market has today partially priced in the optimism from ICH as far as PTC is concerned (forward EPS could jump to PkR7.2 ex-VSS), we believe that the smaller telco players (TELE, WTL and WTCL) should also be in for a sustained bull run.

ICH key terms: In order to enhance the understanding of our readers, we have provided definitions/explanations of some of the telecom jargon (Source: Access Promotion Rules 2004):

i) Approved Settlement Rate (ASR): Half of the Approved Accounting Rate (AAR), which is the rate that a license negotiates with a foreign service provider for handling of one minute of international telephony.

ii) Access Promotion Charge (APC): Payments made by LDI licensees to LL (Local Loop) licensees or to the Universal Service Fund. It is the charge which an LDI operator pays to LL operator for termination of calls on the LL system. Recall that PTCL is the main LL operator in the country, so unlike other LDI’s, it will not have to pay APC, instead it will receive APC payments from other LDI operators.

The market dynamics: Total market size for incoming calls inclusive of the grey traffic is ~2bn minutes per month. Presently, the incoming traffic is mostly coming through legal channels owing to extremely low incoming rates. Post ICH we do see a significant fall in incoming traffic due to i) higher ASR will encourage grey traffic as well as shift towards VoIP platforms like SKYPE, ii) lower demand (demand elasticity), and iii) increase in outgoing traffic where currently outgoing traffic represents ~23% of total international traffic in Pakistan. Despite the said changes, we believe that incoming traffic through the legal channel should still average at around ~1bn min/month, where stricter monitoring, investment in infrastructure to prevent illegal traffic and need for greater voice quality should help curb grey minutes. VoIP is a concern for telcos globally and as per ‘TeleGeography’, VoIP accounted for ~30% of global international traffic.

Earnings impact: ICH will be a game changer for the listed telecom sector, particularly PTC, as the company will have 50% share in revenues from ICH, furthermore, unlike other LDI operators, PTC will actually receive APC and will not have to pay 15% of its LDI margin towards the settlement of USF dues. We estimate incremental per minute revenue of Usc7.5/min for PTC and Usc5.0/min for the other LDI operators. Post creation of ICH, the bargaining power of PTC would be enhanced as it will be the only LDI operator, making it easy for PTC to negotiate the higher ASR rates with foreign operators. Below we have provided earning sensitivity to incoming traffic, where assuming 1bn min/month, the incremental revenue of PTC will amount to PkR42.75bn, resulting in an annualized EPS impact of PkR5.45. The earnings sensitivity of the Telecom sector provided on the previous page assumes a market share of 50% for PTC, ~3.5% for WTL, ~6% for WTCL and ~3% for TELE. 

Recommendation: We highlight PTC as the major gainer from the ICH. Assuming recurring consolidated EPS of PTC of PkR1.75, forward EPS under ICH at monthly traffic of 1bn min could go up to PkR7.2 (ex-VSS), which in turn could conceivably bump up our target price to PkR50/share (assuming market P/E multiple of 7.0x). Similarly, TELE would also be a key beneficiary of the development (second highest EPS impact) followed by WTCL and WTL which should lead to multiple re-rating of these scrips in our view. We recommend a BUY stance on the sector with PTC being our conviction pick.

Risks to our call: CCP presents the biggest road block to our call, however we expect MoIT to amicably address the concerns of CCP, where the government itself would be a major beneficiary of the ICH in the form of higher foreign exchange earnings as well as improving the marketability of the telecom sector for 3G license auction. Another risk would be a huge jump in grey traffic, which could force PTA to reduce ASR in order for the sector to remain competitive. In this regard, a Usc1/min change in ASR will lead to a 13% reduction in our earnings estimates for PTC and 20% for other LDI operators.

Pakistan Market: Technical Outlook


 
Bearish divergence on the RSI; stay on sidelines
 
The KSE-100 index closed at the 15,254 level, a gain of 102 points. Volumes improved by 10% and were recorded at 224mn shares versus 204mn shares traded previously. The current pattern suggests that the index may consolidate at current levels, however, a short term correction is due. The RSI has created a bearish divergence and the Stochastic Oscillator has continued to decline, supporting the above view. At current levels, we believe investors should stay on the sidelines. The supports are at 15,187 and 15,157 level, while the index will face resistance at 15,321 and 15,351 level, respectively.
 

USD/CAD Intraday Technical Analysis and Trading Recommendations for August 30, 2012


The USD/CAD pair was trading in oversold position within a wide range bearish channel which is depicted on the chart in red, when the pair broke through the upper limit of the short term bearish channel presented on the chart in Blue indicating a possible bullish retracement towards price level of 0.9970 seen on Wednesday with two successful retestings of the backside of the broken channel at 0.9888 then at 0.9845 on Tuesday.

Breakout above the bearish Blue channel gives the opportunity for the USD/CAD pair to visit the upper limit of the longer term channel around the price level of 1.0025 as long as the pair is trading within the current consolidation range above 0.9845. However, the pair found resistance around price level of 0.9945 which pushed the USD/CAD pair to the backside of the broken channel 0.9845 again before further continuation of the bullish movement.

Price level of 1.0025 corresponds to Fibonacci levels of 50% and 78.6% of the most recent two bearish swings. That's why price action should be watched there for a valid long term SELL entry with SL located above 1.0080.

GBP/USD Intraday Technical Analysis and Trading Recommendations for August 30, 2012


The GBP/USD pair has resumed its bullish movement recording a higher high last Thursday at 1.5912 after breaking through 1.5750 and reaching the upper limit of the depicted channel which served as supply zone for the pair.

GBP/USD bullish movement was maintained within the depicted movement channel. However, on Friday the market witnessed some expected bearish retracement which was seen on Tuesday too.

The lower limit of the movement channel as well as the significant Support level, located between 1.5750-1.5770, were tested showing a strong bullish price action which indicated a valid low risk BUY entry as expected with SL located below 1.5700.

The most significant Resistance level is located around 1.5910; this price level was tested last week expressing obvious bearish reaction which pushed the GBP/USD pair towards the lower limit of the depicted movement channel yesterday. That's why bullish movement should break through this level in order to make other bullish swings.

Breakthrough above price level of 1.5850 is essential today in order to reach the next resistance level at 1.5910.

AUD/USD Weekly Wave Analysis



AUD/USD Elliott Wave
For the last 2 weeks the AUD/USD pair was trading in a strong downward move, developing corrective wave A (coloured green) of the bigger wave (E) (coloured orange). Yesterday during the early European session we could observe an ascending movement towards the 1.0397 level (new daily high). Therefore, at the beginning of the New York session this currency pair did not manage to hold this level and the price pushed lower reaching a 1.0347 level. At the moment the AUD/USD pair is trading around 1.0328 level and we are expecting to see the price around 0.9825 level in a few weeks. In accordance with our wave rules and taking into account that the wave E retraces 61.8% of the wave C, we can define the potential targets by measuring wave C, with Take Profit 1 at 0.9974 (50% of wave C) and Take Profit 2 at 0.9824 (61.8% of wave C) To reduce the risk, we can use resistance at 1.0410 as Stop Loss. Also it is necessary to monitor the U.S. Prelim GDP q/q, Pending Home Sales m/m, Crude Oil Inventories, Beige Book and EU German Prelim CPI m/m data that can change the rate of the pair.

Support and Resistance
(S3) 1.0283 (S2) 1.0315 (S1) 1.0332 (PP) 1.0364 (R1) 1.0381 (R2) 1.0413 (R3) 1.0430

Trading Forecast
Proceeding from Elliott Wave rules today, the trend is expected to begin the downward movement. That is why short positions at level 1.0315 with Stop Loss 1.0410, Take Profit 1 0.9974 and Take Profit 2 0.9824 are recommended.

USD/CHF Wave Analysis for August 30,2012


USD/CHF Elliott Wave
Since our last analysis the USD/CHF pair was trading in a downward move like we expected, developing impulsive (3) wave of the bigger (5) wave (coloured purple). Yesterday during the European and New York sessions we could observe a descending movement from 0.9635 towards the 0.9547 level and we can consider this move as confirmation of our count. At the moment this major pair is trading around 0.9565 level and we are expecting to see the price around 0.9455 level soon. In accordance with our wave rules and taking into account that the wave 3 retraces 161.8% of the wave 1, we can define the potential targets with Fibonacci extensions (0.9660-0.9538-0.9634), with Take Profit at 0.9457 (161.8% of wave 1). To reduce the risk, we can use resistance point at 0.9595 level as Stop Loss. Also it is necessary to monitor the U.S. Unemployment Claims, Core PCE Price Index m/m and Personal Spending m/m data that can change the rate of the pair.



Support and Resistance
(S3) 0.9533 (S2) 0.9549 (S1) 0.9559 (PP) 0.9576 (R1) 0.9592 (R2) 0.9602 (R3) 0.9619



Trading Forecast
Proceeding from Elliott Wave rules today, the trend is expected to begin the downward movement. That is why short positions at level 0.9550 with Stop Loss 0.9595 and Take Profit 0.9457 are recommended.

Obama or Romney? Markets do not care


Will the markets feel better under Romney or under Obama? Many analysts think that there is no difference.

Of course, despite who wins in November, he will have to determine economic prospects of the country, cope with financial crisis, healthcare issues and many other crucial problems. Barack Obama and Mitt Romney are major contenders to the presidency but both of them do not have much influence on the markets.

It is hard to foresee how the market will behave in this or that case. There are too many of long term tendencies and factors which could not change the market direction just because there are some changes in the White House.

It is obvious that the elections will be predetermined by the problems in the country of that period. Investors from the both of sides admit one thing about the taxations: they must grow. However, who is going to pay more is not known yet.

Some experts note that political leaders of the country seem not to be able to compromise. Better not to think about the consequences of such behavior. Nevertheless, you can be sure that the economists of the Republican Party or democrats think that their ideas will be prosperous for the country while the actions of their opponents will lead to the crush.

Stock market correlates with profits and dividends and mainly depends on the business activity which is hard to predict. It is vital that the government will be able to create commercial benefits.

EUR/USD Wave Analysis for August 30, 2012


Wave Analysis:
During yesterday's trading session, EUR/USD failed to get over 1.2570 which resulted in price drop towards the lower line of the uptrend channel. Thus, the currency pair is of wait-and-see attitude which enables the growth within the boundaries of wave 5. In case of negative news, the pair may resume its downward move towards 24-level figure. Given that, indicators demonstrate unstable balance in which the market can operate till Bernanke’s speech on Friday.



Targets for Down Wave 1 or a:
1.2521 – 23.6% Fibonacci
1.2478 – 38.2% Fibonacci



Targets for Wave 5 into 5:
1.2568 – 161.8% Fibonacci
1.2613 – 200.0% Fibonacci



Summary and Trading Recommendations:
The most probable outcome is the continuation of the uptrend channel which was formed in 5 wave. Wave 5 into 5 may also continue its move enabling the rise towards 1.2568 and 1.2613 which is equal to 161.8% and 200.0% Fibonacci. The uptrend channel indicates the upward trend area, fixing below which will indicate a stronger downward move. After 5 into 5 wave formation, the pair may start going down under 1 or a wave which may push the currency pair lower towards 1.2521 and 1.2478 which is equal to 23.6% and 38.2% Fibonacci.

Wednesday, August 29, 2012

EUR/USD Intraday Technical Analysis - August 29, 2012


Yesterday the spot rate bounced off to the lower limit of its short term bearish channel at 1.2470 and is testing now the upper limit of this one at 1.2580 suggesting a decline. However, a break of these levels will release a good potential and initiate a bullish channel.

Technical indicators provide sell signals and until the resistance is not broken, the assumption of a decline is most likely. Bollinger bands are much discarded as a result of a strong increase of these days. Stabilization is expected in a short term.

As the spot rate tests the upper limit of its channel, we recommend 2 scenarios: the first one is the hypothesis of a decline where we suggest a sell at the level of 1.2580 with the 1st objective at 1.2520 and then at 1.2500. A breakthrough of 1.2600 will invalidate this scenario. The second scenario is a break of its resistance where we advise a “buy stop” which means buying the spot rate as soon as it is broken through its resistance of 1.2580 with the 1st objective at 1.2640 and then at 1.2660. A breakthrough of 1.2560 will invalidate this scenario.

USD/CHF Wave Analysis for August 29,2012


USD/CHF Elliott Wave
Yesterday the USD/CHF pair was trading in a downward move developing impulsive 5 wave (coloured purple) of the bigger wave 3 (coloured blue). During the European and New York sessions we could observe a descending movement from 0.9626 towards the 0.9547 level and we can consider this move as the end of the (1) wave (coloured black) of the bigger 5 wave (coloured purple). At the moment this major pair is developing corrective (2) wave (coloured blue) and we are expecting to see continuation of the bearish mood today. In accordance with our wave rules and taking into account that the wave 3 retraces 161.8% of the wave 1, we can define the potential targets with Fibonacci extensions (0.9798-0.9699-0.9767), with Take Profit at 0.9416 (161.8% of wave 1). To reduce the risk, we can use invalidation point at 0.9635 level as Stop Loss. Also it is necessary to monitor the CHF KOF Economic Barometer and U.S. Prelim GDP q/q, Pending Home Sales m/m, Crude Oil Inventories, Beige Book data that can change the rate of the pair.

Support and Resistance
(S3) 0.9439 (S2) 0.9493 (S1) 0.9526 (PP) 0.9580 (R1) 0.9613 (R2) 0.9667 (R3) 0.9700

Trading Forecast
Proceeding from Elliott Wave rules today, the trend is expected to begin the downward movement. That is why short positions at level 0.9560 with Stop Loss 0.9635 and Take Profit 0.9416 are recommended.

EUR/USD Ready for 1.2000 - Weekly Wave Analysis


EUR/USD Elliott Wave
Since our last analysis the EUR/USD pair was trading in a downward move like we expected, but if we take another look, we will come to a conclusion that corrective 4 wave is not over, so, there is no much change in our wave count. Yesterday during the early Asian session this major pair found support at 1.2465 level and we could observe a strong ascending move towards the 1.2575 level (3 days high). At the moment the EUR/USD pair is developing final 5 wave (coloured blue) of the bigger (C) wave (coloured green) and we are expecting to see price around 1.2000 level when the development of the final (5) wave (coloured orange) starts. In accordance with our wave rules and taking into account that the wave 5 retraces 161.8% of the wave 1, we can define the potential targets by measuring wave 1, with Take Profit 1 at 1.9964 (138.2% of wave 1) and Take Profit 2 at 1.1884 (161.8% of wave 1) To reduce the risk, we can use resistance at 1.2700 as Stop Loss. Also it is necessary to monitor the U.S. Prelim GDP q/q, Pending Home Sales m/m, Crude Oil Inventories, Beige Book and EU German Prelim CPI m/m data that can change the rate of the pair.

Support and Resistance
(S3) 1.2383 (S2) 1.2424 (S1) 1.2494 (PP) 1.2535 (R1) 1.2605 (R2) 1.2646 (R3) 1.2716

Trading Forecast
Proceeding from Elliott Wave rules today, the trend is expected to begin the downward movement. That is why short positions at level 1.2520 with Stop Loss 1.2700, Take Profit 1 1.9964, and Take Profit 2 1.1884 are recommended.

GBP/USD Supports and Resistances for Wednesday, 29 August, 2012


On 28th of August the British pound demonstrated a healthy deviation.

Having dropped against the dollar, the British currency then was trying to recover its positions during the Asian session. It managed to climb to week highs near 1.5837 and interrupted its 3-day fall.

At the end of the day the price was near VAL 1.5754 and VAH 1.5807. POC was in 1.5789 area.

Forecast for Today:
During the Asian session, the pound was trading in the narrow price range against the dollar.

In case of the following upward movement, the first resistance level will be at VAL of 24 August – 1.5823. From that level the growth will extend towards POC of 1.5861 and then to VAH of 24 August – 1.5897.

The most conservative longs will be up to VAL of 16 May – 1.5906.

In case of downward movement, the first support level will be placed at POC of 27 August – 1.5808. From this level the fall will extend towards yesterday’s POC of 1.5789 and then towards POC of 21 August – 1.5760, after that to POC of 16 August - 1.5737.

The most conservative shorts will be at POC of 20 August – 1.5707.

Tuesday, August 28, 2012

USD/JPY Forecast August 28, 2012, Technical Analysis


The USD/JPY pair had a very quiet session on Monday, in order to form a very neutral candle. We are sitting on top of support though, and as such it looks like a break to the upside would be an excellent opportunity to buy this pair that looks so consolidative. With this being said, we think that the 78 handle will continue to be protected by the Bank of Japan, and as a result will buying this pair as opposed to sell it.

We do see the 80 handle as massive resistance though, and as such are looking this only as a range trade. We don’t think this pair breaks out anytime soon, but if he gets above the 80.60 level, we see a move to 84 happening. If for some reason the market breaks down below the 78 handle, we think that the first signs of support should be bought as the Bank of Japan will certainly intervened sooner or later.

USD/JPY Forecast August 28, 2012, Technical Analysis

GBP/USD Forecast August 28, 2012, Technical Analysis


The GBP/USD pair attempted to rally during the Monday session, but fell off and managed to break down well below the 1.58 level. This is a very bearish sign as the day is closing out the session forming a shooting star, and now we have to pay serious attention to the 1.57 level if this level gives way, this would become a false breakout of a massive triangle – which is a massively bearish sign.
We still see no reason to panic at this point in time, as this is more than likely just going to be a pullback. On a supportive candle between here and the 1.57 level, we are very comfortable going long. Again though, if we get a daily close sub 1.57, this could be a market that would be worth selling.

GBP/USD Forecast August 28, 2012, Technical Analysis

AUD/USD Forecast August 28, 2012, Technical Analysis


The AUD/USD pair fell during the session on Monday as the 1.04 level has given way. The market appears like it is one seems to accelerate to the downside, but the 1.03 level should provide some type of supportive bounce at this point. We have broken down below the bottom of an up trending channel, and as such we are suddenly finding ourselves bearish of the Australian dollar.
During the early hours of the Monday session, China announced a large stimulus plan in order to pump the economy of from a confidence standpoint. It appears that the announcement has backfired, as it shows that the Chinese seem to be more concerned about the economic slowdown in that country than what was previously suggested. Because of this, there are concerns as to whether or not the Chinese can continue to buy so many of Australia’s natural resources.
On a break down below the 1.03 level, we would be very short of this pair aiming for parity. As for buying, we are not interested at the moment as we are already short with a small position.

AUD/USD Forecast August 28, 2012, Technical Analysis

USD/CAD Forecast August 28, 2012, Technical Analysis


The USD/CAD pair fell during the session on Monday, but managed to bounce in order to form a hammer by the end of the trading day. Interestingly enough, the oil markets looked relatively weak on a day that a massive tropical storm was heading towards many of the major refineries in the Gulf of Mexico. In fact, the storm is expected to be a level I hurricane by the time it hits land, and this should have in fact on refinery capacity.

However, it looks like the market may be read pricing the idea of quantitative easing coming out on Friday from the United States. With the Jackson Hole, Wyoming meeting on Friday that features a statement by Federal Reserve Chairman Ben Bernanke still lurking in the background, the markets may actually start to put a bid in for the US dollar as many are starting to rethink whether or not quantitative easing will be announced this week.

This pair is highly sensitive to this kind of action, as the Canadian economy is so dependent on the United States for its exports. In fact, Canada exports over 85% of the goods it sends out of the country to the Americans, and of course what happens in America is massively important to Canada as a result. With this being said, if the Dollar starts to strengthen we could see a lot of momentum start back up.

Looking at the charts, we are actually at the bottom of a larger consolidation area that extends from 1.04 to the 0.98 level. If we bounce from here, we would simply be continuing the consolidation that the market has been in for several months. In fact, this has been the bottom of the range for the last year, and as not much has changed it is hard to think that the currency should be priced any differently.

On a break of the highs from last week, we are more than willing to go long as it would show a bit of a momentum shift in this market. Obviously we could have fairly tight stops as the 0.98 level must hold as support. As for selling, we will not do it until 0.98 gives way on a daily close.




USD/CAD Forecast August 28, 2102, Technical Analysis

EUR/USD Intraday Technical Analysis and Trading Recommendations for August 27, 2012


The EUR/USD pair is on its way to test the short term uptrend depicted on the chart after finding resistance around price level of 1.2535.

It's more probable now that the H&S reversal pattern mentioned in the previous article is going to be confirmed.

Confirmation requires 4H closure below 1.2490 which opens a direct target towards 1.2435 then 1.2360.

The lower limit of the movement channel and two important Fibonacci levels & SMA 100 are located between 1.2310-1.2360 (S2 & S3) where price action should be watched for a valid low risk BUY entry with SL located below 1.2230 which corresponds to 78.6% of Fibonacci level.