Vikram Murarka
Kshitij Consultancy Services
GOOD MORNING!
STOCKS
The US markets kept the sentiment positive on the back of encouraging FOMC Minutes but Europe still looks weak. The severe weakness of Major currencies against the Dollar may trigger some Asset Allocation moves now. Keep watch.
Dow (16979.13, +0.35%) has recovered nearly all of the last month’s losses and still no weakness is visible after 9 days of rally. Observe the price action at the next resistance area in 17300-400. On the other hand, despite all its rise, Dax (9314.57, -0.21%) remains structurally weak and more probably the corrective bounce is going to end near the long term resistance in 9400-600 followed by a resumption of the major downtrend.
Nikkei (15573.27, +0.77%) has crossed previous week’s high and continues to rally despite our reservations. Now it must be admitted that the uptrend remains intact above 15000 levels and higher levels are to be expected. Shanghai (2232.92, -0.33%) is struggling for the last 2-3 sessions but still may reach the long term resistance 2260-70 if manages to stay above 2225.
Nifty (7875.30, -0.28%) retains its uptrend in all timeframes till now and the target of 8000 is not hurt as long as the index stays above 7850-40.
COMMODITIES
Metals are overall bearish except Copper. Oil markets are trading lower but is expected to bounce up anytime in the near future.
Brent (102.02) has bounced from support near 101.4 on the daily charts. Need to see if it starts a fresh rise from here or breaks below 101 to test long term support at 100-98. Longer term trend is up.
Nymex WTI (93.36) is trading below levels of 94 and may soon target 92. A bounce from 92 could start a fresh rise upwards else may enter into a near term sideways consolidation.
Gold (1289.20) is heading down towards crucial support near 1280.5-1280 which if holds may bounce a little to 1290-1300 before falling again. Overall long term remains bearish wile below 1300-1340.
Silver (19.462) is also trading lower and may extend to support near 19-18.5 levels from where it may rebound towards 20-21.5. Gold-Silver ratio (66.242) has paused after the recent rise from 62.94. It may remain ranged for a few sessions before breaking below 65.7.
Copper (3.1615) has risen sharply after gearing up a little in the 3.08-3.10 region and may again target earlier levels of 3.20-3.25. Near term remains bullish.
FOREX
The only that counts now is the Dollar (82.32) rally and capitulation of all the Majors. Expect more of the same.
Euro (1.3246) looks comfortably destined for our target of 1.31 as it has crashing down vertically after the FOMC Minutes last night.
Dollar-Yen (103.87) is hitting a 5-month high after breaking above 103 contrary to expectations. Now expect minor resistance at 104.10-20 and major resistance at 105.25-45. Interestingly, Euro-Yen (137.59) still remains stuck just because of a proportionate fall in Euro & Yen with no relative margin. The 3-week range of 135.75-138.00 is yet to break.
Pound (1.6575) has resumed its major downtrend after the minor bounce just as expected. The red candles are getting bigger in size lately, suggesting increasing bearish momentum and possible short term target of 1.6525-1.6470.
Aussie (0.9248) couldn’t save itself from the Dollar onslaught and is back, testing lower end of the broad range of 0.92-0.95. A break below 0.92 will make the long term trend down but with the Chinese equity rallying, that breakdown may be a bit tough.
Dollar-Rupee (60.61) has hit our target support zone at 60.50-40. Now it remains to be seen if some short covering emerges on the back of this immense Dollar strength against all the currencies.
INTEREST RATES
As warned yesterday, the German-US 2Yr Spread (-0.48%) has fallen sharply and can decline further, pulling the Euro (1.3250) down with it. Some temporary Support is seen near current levels (-1.45%) on the German-US 10Yr Spread. Take a look at
http://www.kshitij.com/graphgallery/eurusddiff.shtml#eurusd
What Draghi says at Jackson Hole will be as important as what Yellen says. European yields continue to fall but there is need for caution on some of the peripheral yields which are near very significant long-term Supports. We need to watch whether these can break and yields can fall even further.
US Yields (5Yr 1.64%, 10Yr 2.44%, 30Yr 3.23%) have risen well yesterday after the FOMC Minutes. This is contrary to our view yesterday wherein we said "yields appear less likely to rise now than earlier." Bloomberg reports that the market now sees 54% chance of a 0.5% hike in rates by July-15. However, the 2Yr Swap Cost has dipped a bit to 0.2253% from 0.2290% earlier. We are a little confused on long-term direction now and need to stand back to figure out what's happening.
The dip in the Indian GOI (8.48%) below 8.50% yesterday is a big development. Further fall towards 8.45-8.40% will bring in more FII inflows into the Debt market. Watch this.
DATA TODAY
14:00 GMT or 19:30 IST US Philifed Index
...Expected 20.3 ...Previous 23.9
14:00 GMT or 19:30 IST US Existing Home Sales
...Expected 5010 K ...Previous 5040 K
DATA YESTERDAY
UK BOE Minutes
...Expected 0-0-9 ...Previous 0-0-9 ...Actual 0-0-9
The above views are based on the latest available information. Though the information sources are believed to be reliable, the information is not guaranteed for accuracy. While the views are proffered with the best of intentions, neither the author, nor the firm are liable for any losses that may occur as a result of any action based on the above. World financial markets, and especially the Foreign Exchange markets, are inherently risky and it is assumed that those who trade these markets are fully aware of the risk of real loss involved.
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