STOCKS
Overall global equities are mixed. Except Shanghai which fell from immediate resistance levels, the other indices are trading below resistance levels and could soon follow the downside correction within the next week. We need to watch them closely and monitor price actions near resistance levels.
Dow (25333.82, -0.32%) closed lower but while above 25250, there is still a possibility of a bounce back towards 25500 or higher in the medium term. A break below 25250 would negate any immediate rise and instead drag the index down towards 25000 by early next week. Movement near 25250 is crucial to watch.
Dax (12737.05, -0.53%) also dipped a bit and could test support near 12700 before a corrective bounce towards 12900-13000 is seen.
Nikkei (22654.91, -0.40%) could possibly be stuck in the narrow 22600-23000 region till early next week. Thereafter, if the index falls back towards 22600, it could start a medium term fall to levels below 22600.
Shanghai (2764.90, -2.11%) fell sharply from levels near 2900 yesterday and continues to trade lower today also in line with our expectation. A fall towards 2750 and lower look possible in the next 2-3 sessions. Near term looks bearish.
Nifty (11346.20, -0.091%) dipped from immediate channel resistance but the current upmove might not be over as yet. The index could see a short dip for now before again moving towards 11500-11550 within the next couple of weeks.
COMMODITIES
Brent (72.79) has come down as expected and could test 72.50 as an immediate support before the price could rise back over the next couple of days. Support on the Weekly line charts is likely to hold and could possible take the price higher by next week.
Nymex WTI (67.97) has support at current levels and could bounce back over today and tomorrow. A sharp bounce if seen would take Brent also to higher levels of 73-74 by tomorrow.
Gold (1227.80) and Copper (2.7455) are trading low just now. They could see some more of downside towards 1220/10 and 2.70 respectively by early next week before eventually trying to attempt a rise.
FOREX
Euro (1.1654): The FOMC yesterday couldn’t weaken the Euro much. The test of support (now near 1.1625) on daily candles could still happen in the next 1-2 sessions. From the 3 day line chart, the possibility of a last leg of downmove towards 1.145 in the coming 2 weeks still seems possible.
Dollar Index (94.64): The Fed again stressed that the US economy is growing strongly and consequently, a rate hike in September is almost certain. Although the Fed policy couldn’t drive any strength into the Dollar Index, it still looks like it could strengthen towards 95.0-95.5 by next week, as long as it stays above 94.
Dollar Yen (111.65): While above support near 111.5 on daily candles, Dollar Yen could still move back up towards 112.5. However a break 111.5 could again make it test levels near 110.5 in the coming week. The rise in Japanese yields (see Interest rates below) might drive some strength into Yen in the near term.
Euro Yen (130.12): Euro Yen is again trading close to support on daily candles. If the Euro weakens towards 1.16 and then towards 1.145 (as forecasted above) and the Dollar Yen’s upside is capped by 112.5-112.0, we could see the Euro Yen break below 130-129 and approach 127 in the next 1-2 weeks.
Pound (1.3106): The Pound has continued to trade quietly as markets await the BOE policy today, where a historic rate hike is widely expected. A rate hike could logically strengthen the Pound, making it respect supports near 1.312 (89 weeks MA) and 1.3050 (horizontal line on weekly candles). However, the broader trend still looks bearish and we are slightly tilted towards a gradual break below 1.3050. Lets wait and watch.
Dollar Rupee (68.435): Offshore NDF rate near 68.34/39 currently. A dip to support near 68.30-25 possible in today’s / tomorrow’s session.
INTEREST RATES
The Fed didn’t hike rates as expected; however it reiterated that the US economy is growing strongly. A rate hike in the September meet looks almost certain and so does a rate hike in Dec. The big question that arises now is – will the Fed continue with as many rate hikes in 2019 as well?
US 10 year yield (3.00%), 30 Year (3.12%), 5 Year (2.87%), 2 Year (2.67%):
Even prior to the Fed policy release, US yields had started rising, with the 10 year yield testing a high near 3.01%. With Japanese and German yields rising as well, this time, the 2.95%-3.00% barrier looks slightly weaker. If the 3% level is breached in the coming 2-3 sessions itself, we might have to look at new highs being created by the 10 year yield in 2018 (above the 3.125% high reached in May ’18).
Day before yesterday, the Bank of Japan had maintained status quo in its policy – keeping the target for Japanese 10 year yield at 0% and Japanese short term interest rates at -1.1% – but it also announced that its policy framework will be more flexible in future for the long term yield. This opens up the possibility for Japanese 10 year yield to be more reactive to positive news about the Japanese economy.
Infact, the Japanese 10 year yield (0.13%), as we had warned, has even breached the crucial 0.11% level for the first time in over 2.5 years. This upmove could even continue till levels near 0.20%-0.25%. Lets wait and watch.
German 10 year bond yield (0.48%) is breaking above resistance on short term and medium term chart and could target levels near 0.50%-0.55% next week.
