STOCKS
FED raised interest rates by a quarter percent from 2.0% to 2.25%, with plans of further tightening the policy. Median forecasts indicate another hike this year followed by 3 hikes in 2019 and one in 2020, in line with the previous expectations. No mention of trade worries was seen in the post meeting talks but the Fed could be attempting to lower the impact of higher trade tariffs for both inflation and growth figures.
Dow (26385.28, -0.40%) came off a bit after the FED meeting. But while above 26250, upmove in the medium term looks possible. Even if a break below 26250 is seen, lower support near 26000 may hold in the longer run. We do not look at a fall below 26000 in the medium term.
Dax (12385.89, +0.091%) could dip towards 12300-12200 as mentioned yesterday while the daily resistance near 12500 holds. On the weekly chart, there is scope for an eventual rise towards 12700 in the longer run.
Nikkei (24047.43, +0.054%) has resistance on the daily candle chart near 24200 and while that holds, a short corrective dip is possible from 24200. For the next 2-sessions a rise towards 24200 is possible.
Shanghai (2807.51, +0.051%) has immediate resistance near 2850 and that needs to break on the upside to keep the index moving higher in the medium term. A short dip from 2850 could be seen before resuming a rise towards 2900 or higher.
Nifty (11053.80, -0.12%) came off from levels below 11200 yesterday. While below 11300-11200, Nifty could trade lower or remain ranged in the 10800-11200 region. Weekly chart suggests that the support at 10800 may holds and eventually take the index higher in the medium term.
COMMODITIES
Crude prices trade higher after comments from Trump stated that he expects full compliance by US allies. Focus remains on the impact of Iran sanctions. Some analysts think that the US administration may consider releasing oil from the Strategic Petroleum Reserve given Trump’s stance on the Iran sanctions and his concern over rising oil prices.
Brent (82.25) has risen and could move up towards 84-85 in the near term.. WTI (72.47) is also trading higher and could test 74 in the coming sessions. Overall crude prices look bullish in the near term.
There is no progress in the Gold (1201.40) price movements and the sideways consolidation continues for now. As mentioned earlier 1190-1220 remains the region of trade in the near term.
Copper (2.8170) is trading below resistance near 2.85. As mentioned earlier, we could see the current dip to extend to 2.75 before again bouncing back to move higher. Near term is likely to remain stable.
FOREX
The FOMC couldn’t move the Dollar Index much. However watch out for resistance @ 94.5 on the Dollar Index and support near 1.17 on Euro. The Rupee could strengthen slightly today.
Dollar Index (94.31): Even though the Fed dropped the term ‘accommodative’ while describing its policy stance (a dovish step), it still indicated stronger possibility of a rate hike in Dec ’18 and 3 more hikes in 2019. This has prevented any weakening in the Dollar Index. Immediate resistance near 94.5 needs to be watched – a break above this level would be bullish. A week close below the 21 weeks MA (94.57) would be bearish for the Dollar Index in the near term.
Euro (1.1749): The Fed’s balanced policy outlook has had little effect on Euro. The support near 1.1725-1.1700 continues to be important – a break below it would be bearish. We could see some more ranging between 1.1800-1.1725 in the next couple of sessions – watch out for the release of the US GDP figures later today – a higher than expected growth figure could be bearish for the Euro.
Dollar Yen (112.78): As expected, Dollar Yen tested levels near 113.14 yesterday (close to its July ’18 high of 113.18) and has come off from there. While it stays above 112.5-112.3, it could again rise and break above the 113.18 resistance in the coming 1-2 weeks. However, a break below 112.3 might make it bearish towards 111.5 in the next couple of weeks.
Euro Yen (132.49) has been facing resistance near 133 in the last 4-5 sessions. There are chances of some interim correction towards 131 if the Euro tests support near 1.1725 and Dollar Yen dips to 112.5. However, bias for the coming couple of weeks remains bullish towards levels of 134-135.
Pound (1.3150) has some support near 1.315-1.310, from where it could rise towards 1.325-1.330 in the coming week. A week close above the 21 weeks MA (1.3148) would be bullish.
Aussie (0.7262) breached resistance near 0.73 yesterday but is again trading below it. While it stays above support near 0.725, a rise towards higher resistance near 0.735 on daily candles looks likely in the next week.
Dollar Rupee (72.61) Dollar-Rupee likely to remain in the 72.50-72.75 region with some chances of testing 72.40/20 in the near term.
INTEREST RATES
The US Fed raised the federal funds rate by 25 bps to 2.25% as expected. A significant change in the policy statement was the dropping of the term ‘accomodative’ as a description of the current policy stance – this is being regarded as an acknowledgement by the Fed that interest rates are closer to the neutral rate now. Inspite of this dovish element, the Fed dot-plot remained largely the same as it was in the June ’18 meeting – a December rate hike is now favoured by 12 out of 16 Fed members while a majority of the members are expecting 3 rate hikes in 2019.
The dovish aspect of the policy has ensured a dip in US Yields. The US 10 Year (3.05%) has come off from levels near 3.10% – while it stays below 3.10%, there are chances of it going back below 3% in the near term.
The 10 Year German-US spread (-2.52%) seems to be breaking above trendline resistance on medium term chart and could now target -2.45% in the near term. This would be further supportive of a dip in the US 10 Year yield.
The German 10 year yield (0.53%) might face trendline resistance near 0.54% on medium term chart – this is lower than the resistance @ 0.6% which we have been mentioning previously.
A rise towards -2.45% on the German-US 10 year spread coupled with the German 10 Year yield staying below 0.54% raises possibility of a dip in the US 10 Year below 3%.
If the above happens, our earlier forecast of 3.100%-3.125% being the year’s top for the US 10 Year yield would be proven correct.
The Japanese 30-10 spread (0.78%) could have some resistance near 0.80% – for the resistance to hold, either the 30 year yield’s (0.89%) upside could be restricted till 0.93%, or else, the 10 year yield (0.11%) might break the 0.13% resistance. In either case, a rise above 0.80% on the 30-10 differential would be an important event and potentially bullish for yields globally.
