STOCKS
Major stock indices have risen sharply breaking above the immediate resistances. While the rise sustains, the indices could rally in the near term. Overall stock indices look bullish.
Dow (26743.50, +0.32%) has moved up and tests resistance on the daily candle chart at current levels. A break on the upside could take it to upper resistance near 27000 in the near term. On the longer term charts, the index looks bullish for the medium term towards 27500.
Dax (12430.88, +0.85%) has moved up, breaking above the immediate resistance at 12400. A rise towards 12700 or even 12900 in the longer term looks possible.
Nikkei (23869.93, +0.82%) tested 24000 on the upside and could face some rejection there from the previous high seen in Dec’17. If, the index manages to see fresh highs, a rise towards 24500 or higher would be possible in the longer run. This would also favor Yen weakness in the medium to long term.
Shanghai (2797.48, +2.50%) tested 2800 and while the index sustains the current rise, re-test of levels near 2900 is possible.
Nifty (11143.10, -0.81%) tested 10900 on the downside on Friday dragged by the sharp fall in the realty stocks but recovered to close at higher levels. Some weakness could persist while below 11200.
COMMODITIES
Both Brent (79.73) and WTI (71.53) are trading higher. Brent managed to stay ranged in the 78-80 region. A break on either side would trigger further movement in the rest of the week. A rise on the upside is preferred while the earlier resistance turned support at 78 holds.
WTI has broken above immediate resistance near 70-71 and looks bullish in the near term. While above 71, WTI could target 74 on the upside.
Gold (1200.60) is finding difficulty to sustain above 1200 just now and is stable in the 1220-1190 region. A re-test of 1190-1185 on the downside cannot be negated and we do not see a near term rise above 1220.
Copper (2.8350) has risen towards 2.85 in line with our expectations. Some near term rejection is possible in the 2.85-2.90 region from where a short dip could be seen before the price resumes its upmove. Near term looks bullish.
FOREX
Watch the FOMC policy decision on Wednesday – it could prevent further Dollar weakness. However charts suggest otherwise for the Dollar Index.
Dollar Index (94.26): As mentioned on Friday, the break of the 21 weeks MA on weekly line chart makes the Dollar Index look bearish in the weeks ahead. It could move down to test horizontal support on daily candles near 93.20 by next week. Watch out for the FOMC on 26th Sep – a hawkish view could put a pause to Dollar weakness.
Euro (1.174) has immediate resistance in the 1.180-1.185 zone. Unless the FOMC strengthens the Dollar, the current preference is for Euro to breach 1.185 and tend towards higher resistance near 1.190-1.1925 (daily candles) by next week.
Dollar Yen (112.59) looks bullish towards its July ’18 high of 113.18 in the next 1-2 weeks – as mentioned on Friday, there could be some resistance in the 113.18-113.75 zone after that. If it breached 113.75 as well, the next upside target could well be near 115 in the medium term.
Euro Yen (132.19) came off after testing a high near 113.13 on Friday. The above forecasts on EURUSD and Dollar Yen imply a bullish Euro Yen – there is resistance on daily candles near 133.5-134.0 in the near term, which might get tested in this week. From the weekly line chart, it looks bullish towards 135 in the weeks ahead.
Pound (1.3077) fell on Friday to end the week below the 21 weeks MA at 1.313 on weekly line chart. If it breaks below 1.305, we can again start looking at the downside for Pound. However, while above 1.305, the some chances of bullishness towards 1.34 are still there.
Aussie (0.7269) has come off from crucial resistance near 0.73 on daily candles. While above 0.7200-0.7225, it could rise towards 0.74 in the next 1-2 weeks.
Dollar Rupee (72.22) Ranging between 72.60-80 on the upside and 71.80-60 on the downside could happen this week. Near term bearishness in Indian equities could limit Rupee strength this week.
INTEREST RATES
The Japanese 30 Year yield ( 0.88%) has breached resistance near 0.85% on long term chart. If it sustains this breach in the next few sessions, it could be a bullish indicator for global yields.
The FOMC on Wednesday is set to hike the federal funds rate by 25 bps – this hike has already been factored in by traders. The attention now shifts to the FOMC’s indications for future rate hike decisions in Dec ’18 and in 2019. Any dovishness or hawkishness on that front would be crucial for whether the 10 year yield stays below its 2018 high of 3.100%-3.125% or breaches it.
US 10 Year yield (3.06%) has come off after testing 3.10% once in the previous week. As mentioned on Friday, the important upside levels to watch out for are: 3.10%, 3.125% and 3.16%. Our current preference is for the yield to not breach 3.16% (800 weeks MA).
The 10 Year German-US spread (-2.60%) is at support on medium term chart near -2.6%. If it doesn’t bounce from here in this week, then it could target lower interim support near -2.65% and ultimately move further down to support on long term chart near -2.70% to -2.80%.
Meanwhile, on the medium term chart, it looks like the German 10 year yield (0.46%) could rise towards 0.6% if it crosses above 0.5%. On the long term chart, there is room for a rise till 0.75% in the coming months.
Combining the views from the medium and long term chart of the German-US 10 year spread and the German 10 year yield, a rise to -2.65% to -2.75% and to 0.60%-0.75% on them respectively is possible – which thereby suggests that we should not rule out a possibility of a rise in the US 10 year yield towards 3.25%-3.50% in the remainder of 2018. The breach of 0.85% by the Japanese 30 Year yield further increases this possibility.
However, for now, we still see 3.16% as an important resistance which needs to be breached by the US 10 Year for higher levels to be tested.
