Market Morning Briefing

GOOD MORNING!

STOCKS
Nearly all the markets are waiting for the ECB & BOE meets today though no substantial change is expected from either of them. Till then, the markets may trade in a narrow range and pass the time.

Dow (16443.34, +0.08%) is trying to stand near the support area of 16300-200, from where some buyers may emerge to push it up to 16600 levels once more, but without any visible sign of strength so far. The Dax (9130.04, -0.65%) has given the first positive close in a week after testing the entire support zone of 9150-9000 and maybe now the expected corrective bounce may materialize.

Nikkei (15124.56, -0.23%) is testing the support band of 15100-50 below which, it may drop to 14800-600 levels. The quality of the current drop suggests that the last high of 15760may not be tested anytime soon. Shanghai (2215.86, -0.07%) is facing a bout of profit booking from the 2230 levels just as expected. After this correction or consolidation, it may rally again towards the final long term resistance of 2260-70.

Nifty (7672.05, -0.96%) failed to break above 7760 and feel prey to profit booking as expected. Below Wednesday low of 7660, the downtrend continues for the support area of 7610-7580.

COMMODITIES
Commodities are mixed. Copper, Nymex WTI and Brent trading low while Gold and Silver are marginally up.

Gold (1307.15) shot up yesterday on flaring tensions over Ukraine increasing the demand for the metal. But in the longer run the possible Dollar strength over Euro may become bearish for Gold. Need to wait and see if the rise sustains and takes it higher towards 1330 or comes back to lower levels of 1290 in the coming sessions.

Silver (20.089) also rose after the ECB Meeting yesterday, also bouncing from crucial support near 19.7. If the support holds we may see a rise towards 20 again. Overall immediate trend is down.

Copper (3.1775) is now moving down sharply coming off from 3.25 and may test 3.15-3.10-3.07 levels from where we may expect a little correction upwards.

Nymex WTI (97.00) is fully under control of the bears and is sharply falling. Will it bounce back from the crucial support near 96? Or will it again see levels of 92-91.7 as last seen on 25-Nov’13? Keep a close eye on the crudes.

Brent (104.83) is ranged in the 104-105 region and may remain so in the near term. It must bounce back from current levels else a break below 104 could be vulnerable to a fall towards 100-99 levels.

FOREX
Despite Italian recession, bad Germany Factory Orders, sanctions against Russia and threats of Russian incursion into Ukraine, the bounce seen in Euro has puzzled all the traders. Perhaps just a show of caution on the part of Euro-bears before the big event of ECB meet today? Perhaps QE is not coming today?

Euro (1.3386) has bounced sharply from 1.3330, close to our support area of 1.33 but 1.3450-75 would be a very tough hurdle to tackle. The ECB meet in the afternoon would be the trend-decider today.

Dollar-Yen (102.18) is trading in the range of 101-103 but lost the bullish impetus to attempt the difficult rise to 103.50-104.The range bound price action doesn’t look like ending anytime soon. Euro-Yen (136.78) bounced back after achieving our target of 136.40-05 as it made a low at 136.16. If Euro can extend the bounce, this pair may expect to test the major resistance area around 138 once again.

Pound (1.6856) tested 1.6820 levels after a sharp rejection from 1.6890-6900 as expected. The next course depends on the BOE decision today and it would be better not to speculate before that event.

Aussie (0.9281) is suffering from a vicious selloff as its Unemployment rate hits a 12-year high and the Labor Force data comes at -300 against the expected 13500. The price action at the long term support zone of 0.9250-0.92 may determine the medium term direction and trend.

Dollar-Rupee (61.50) ended its correction at 60.70 just as expected and hit 61.50 levels. Now a bout of profit booking may be expected from the area of 60.50-70 levels before further upmove.

INTEREST RATES
ECB and BOE meets today. Market expects no change in interest rates at either. European rate is 0.15%. UK rate is 0.5%. The BOE is also expected to retain the Asset Purchase Target at 375B.

Conntinued and growing threat of disinflation is Draghi's challenge, what with CPI down to 0.4% in July. See http://www.kshitij.com/fundamentals/funcharts/eucpi.shtml

Plus, Italy is now in recession and growth is slowing in Germany as well. Adopting QE may be technically difficult as well. Which country's sovereign bonds will the ECB buy?

That said, we actually see chances of the German 2Yr (0.0045%) rising as it has some Support at current levels. See
http://www.kshitij.com/graphgallery/eursin00.shtml#sin00

A rise in the German 2Yr can pull the Germany-US 2Yr Spread (-0.44%) up towards -0.41% at least. This could help the Euro to rise towards 1.3410. If the Double Bottom on the Germany-US 2Yr Spread leads to a break above -0.40%, the Euro could see some more short-covering. This is a contrarion call. Need to watch it. Take a look at
http://www.kshitij.com/graphgallery/eurusddiff.shtml#eurusd

The Indian 10Yr 2024 Bond moved up to 8.64%. But, yesterday was the first day this week that FIIs actually bought a bit of Debt, instead of selling the large chunks as they earlier in the week. We will be watching their activity closely.

DATA TODAY

1:30 GMT or 7:00 IST Australia Labour Force
...Previous 14.9 K ...Actual -0.3 K ...Expected 13.5 K

11:00 GMT or 16:30 IST BOE Mtg
...Expected 0.50 % ...Previous 0.50 %

11:45 GMT or 17:15 IST ECB Meeting
...Expected 0.15 % ...Previous 0.15 %

14:00 GMT or 19:30 IST CA PMI
...Expected 54.90 ...Previous 46.90


DATA YESTERDAY

US Trade Balance
...Expected -44.20 $ Bln ...Previous -44.66 $ Bln ...Actual -41.54 $ Bln