Chart Advisor: EURUSD: Poised for a Bullish Breakout

By Kapil Mokashi, CMT, CFP

1/ EURUSD: Poised for a Bullish Breakout

2/ Copper’s 10% Rebound: Will the Momentum Continue?

3/ Ola Electric’s Market Debut: A Rollercoaster Ride for Investors 

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1/

EURUSD: Poised for a Bullish Breakout 

The EURUSD showed a 1.26% rise over the past week & over a 3% rise over the past month thanks to the favorable fundamental factors supporting this move. While the currency is trading close to important resistance levels on shorter term time frames like hourly & daily &  can have some pull back, the longer time term outlook remains quite bullish as both fundamentals & technical’s nicely align. 

Fundamentally, a multitude of factors, some of them listed below favor strengthening of Euro-     

1. Diverging Central Bank Policies – The European Central Bank (ECB) continues its tightening cycle, with potential interest rate hikes aimed at curbing inflation. A hawkish stance by the ECB could attract investors to the euro. Conversely, the Federal Reserve has  signaled a pause or potential rate cuts due to slowing U.S. economic growth.This might weaken the dollar, further supporting EUR/USD. 
2. Economic Data from the Eurozone – Positive economic indicators from the Eurozone, such as robust GDP growth or improved business sentiment, could bolster the euro. This would be especially impactful if the U.S. economy shows signs of slowing down. 
3. Geopolitical Factors – Stabilization in Europe’s energy situation or a more secure energy supply could reduce economic uncertainty in the Eurozone, strengthening the euro while any political uncertainty in the U.S., such as debates over the debt ceiling or geopolitical conflicts, could weaken the dollar, supporting a EUR/USD rally. 
4. Inflation differentials – Persistent inflation in the Eurozone could lead to further ECB rate hikes, strengthening the euro. On the other hand, if U.S. inflation moderates, the Fed might slow its rate hikes, softening the dollar. 

Technically too on the weekly time frame time, EUROUSD has broken out of a symmetrical triangle pattern with RSI levels above 60 corroborating bullishness. The measured move principle of breakout, is hinting towards a potential targets of 1.2060-1.2080 over the short to medium term.Post this current pullback which is in progress, the probability of EUROUSD moving towards these levels remain very high. 

2/

Copper’s 10% Rebound: Will the Momentum Continue? 

Copper rebounded almost 10 % from the lows of 3.90 to close at 4.20 as of Friday. Several factors contributed to its recent rally. A significant drop in inventories, particularly a 4.3% decline in Shanghai Futures Exchange stocks, has tightened supply, supporting prices. Additionally, easing concerns about a U.S. economic recession have improved market sentiment, boosting demand for industrial metals like copper. In China, signs of stronger demand and a sharp reduction in copper exports, with July shipments dropping significantly, have further bolstered the market. Despite a global surplus in refined copper, resilient demand, especially from China, has kept prices buoyant, with a notable increase in copper concentrate imports reflecting strong underlying demand. 

Technically, copper futures look set for a further up move till the levels of 4.50 to 4.70 which may prove to be resistance in the short-term. Only a move past this level can take it further to 5.10-5.20 levels which are the earlier highs. However, the possibility of that happening looks bleak in the short-term. Traders should brace for a sideways/consolidation phase in the commodity in the near term. The range is likely to be 4.50-4.70 on the upside & 4.05-3.95 levels on the downside. 

3/

Ola Electric’s Market Debut: A Rollercoaster Ride for Investors 

Ola Electric, India’s leading electric vehicle (EV) manufacturer, made a splashy but puzzling debut on Dalal Street. The stock opened modestly at Rs 76, but in a surprising turn of events, surged nearly 100% within the first four trading days. This buying frenzy, however, proved short-lived. The stock retreated sharply, dropping 25% from its peak of Rs 157 to Rs 125 in just four sessions. 

This wild ride has left investors bewildered. Existing shareholders are questioning their hold, while potential investors grapple with whether this 25% pullback presents a buying opportunity considering Ola’s long-term growth prospects. 

A First for India’s EV Industry – 

 Ola Electric’s IPO marked a significant milestone for India’s burgeoning EV sector. It was the first-ever public listing of a pure-play EV manufacturer, sparking investor interest in this high-growth space. Despite the subdued listing price, the subsequent rally raised questions about the underlying factors driving the surge. 

Growth Potential vs. Speculative Frenzy –  

 Several factors could have fueled the initial rally. Growing investor interest in the EV sector, Ola’s strong market position in India, and positive sentiment surrounding its future prospects are all potential contributors. However, the accompanying volatility raises concerns about potential speculative trading and market exuberance. 

The Investor’s Dilemma: Hold or Fold? – 

 So, what should investors do? Given the limited price history of this new listing, technical analysis offers little guidance. Here, fundamental factors take center stage. 

Valuations vs. Fundamentals – 

 At its peak, Ola’s valuation surpassed even Tesla’s! This is a glaring red flag considering the company’s current financial state. Ola has been incurring losses for the past year, and analysts don’t anticipate profitability in the near future. 

Long-Term Potential, But Wait for the Right Entry Point  

–India’s demographics and macroeconomic trends undoubtedly favor Ola Electric’s long-term growth. However, investors should exercise caution and avoid impulsive decisions at current levels. 

Lessons from History: Patience is Key –  

 We can learn valuable lessons from similar stories like Nykaa and Zomato, the former hotshots of the e-commerce sector. These stocks witnessed a dramatic post-IPO surge followed by a significant correction. 

History suggests that patient investors will likely get an opportunity to buy quality stocks like Ola at a fair, if not necessarily cheap, price. Such high-valuation stocks typically fall sharply, consolidate for an extended period, and then gradually rise as earnings catch up with the stock price – a pattern observed with Nykaa and Zomato. Ola Electric is likely to follow a similar trajectory, offering a future buying opportunity for those who exercise patience. 

The Takeaway –  

Ola Electric’s market debut has been a whirlwind. While the company’s long-term prospects are promising, investors are advised to prioritize fundamentals over short-term hype. Wait for an opportune entry point and avoid getting swept away by the current volatility. 

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Originally posted 27th August 2024

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