STOCKS
Profit-booking in equities following the European Central Bank (ECB) President’s comment that there is no threat of a recession at the moment. This hints that the central banks, especially the US Federal Reserve may not be as aggressive as the market has been expecting in cutting rates. As a result some profits have been taken-off the table and the indices are likely to trade lower ahead of the US Fed meeting next week on Wednesday (July 31).
Dow (27140.98, -128.99, -0.47%) is heading to test 27000. While 27000 hold, a sideways consolidation between 27000 and 27500 is possible for some time. But a break below 27000 can trigger a fall to 26600. While below 27500, we expect the Dow to break 27000 and fall to 26600.
DAX (12362.10, -160.79, -1.28%) has failed to breach 12600 and has come-off sharply much beyond our expected level of 12400. Immediate resistance is at 12380 and the next is at 12450. While these resistances hold, a fall to 12200-12100 is possible in the near term.
Nikkei (21642.52, -114.03, -0.52%) has failed to sustain above 21750 and has come-off today. However, support is at 21600 and 21550 which can limit the downside and push Nikkei higher again to 21750 levels.
Shanghai (2919 2936, -1.36, -0.05%) is holding above 2900 but is not gaining strength. This leaves the near-term outlook mixed. Shanghai can consolidate between 2880 and 2950 for some time.
Nifty (11252.15, -19.15, -0.17%) bounced above 11300 during the day yesterday, but failed to sustain higher. It has come-off to close below 11300 again. The outlook remains bearish to test 11100-11000 while it trades below 11300.
Similarly, Sensex (37830.98, -16.67, -0.04%) is bearish to test 37500 and even 37000 while it remains below 38000.
COMMODITIES
Commodities are looking ranged just now and could see some narrow movement before gaining some momentum next week.
Brent (63.39) is almost stable near levels seen yesterday while Nymex WTI (56.19) is trading slightly higher. Mentioned supports near 62 and 54 are holding well for now and possibly keep crude prices stable or ranged for some time.
Gold (1417.40) is trading low just now and could have scope of falling towards 1410-1400 in the near term.
Silver (16.45) is holding below 16.60 and while that holds, Silver could target to test lower levels of 16.00 soon. View would be bearish below 16.60.
Copper (2.7055) has come off after testing 2.74 on the upside. If he price manages to break below 2.70, it could test 2.68/66 on the downside.
FOREX
Currency markets saw volatility after the ECB policy statement release yesterday where the central bank kept interest rates unchanged but signals a possible rate cut in its next meeting in Sep’19. There is also concern of inflation remaining much below its 2% target.
Dollar Index (97.77) traded within 98-97.50 yesterday and while it currently trades below 98, it is important to see if it re-attempts a test of 98.0-98.5 in the near term before coming off from there. On the 3-day candles, there is scope for Dollar Index to test resistance near 98.50 on the upside before facing rejection from there.
Euro (1.1150) too tested 1.11 initially followed by a sharp bounce to 1.1190 yesterday. Currently trading at 1.1150, if the currency holds above support at 1.11, it could bounce back towards 1.12-1.13 again in the near term. Else a sharp rise towards 98.0-98.50 on the Dollar Index could be bearish for Euro towards 1.11 or lower in the near term. We would wait and watch for a couple of sessions to gain some clarity.
Dollar-Yen (108.59) has moved above 108.50 and could now target upper resistance at 109 which is likely to hold in the first testing. While below 109, there is still some scope of testing 107; else a break above 109 would take the pair towards 110. For now we prefer a rejection from 109.
Euro-Yen (121.06) has held well above 120 and while that holds, the pair may move higher targeting 122-123 in the near term. Near term looks bullish while above 120.
Aussie (0.6947) has fallen below immediate support just above 0.6950 and could target 0.69-0.68 in the medium term. Near term looks bearish on the 3-day candles.
Pound (1.2450) has immediate resistance near 1.2525 and while that holds, Pound could come off in the near term towards 1.2350 as we have been mentioning in the past few editions. Near term view is bearish.
USDCNY (6.8759) is likely to remain sideways in the 6.89-6.85/80 region with more preference for a test of the lower limit of the mentioned range.
USDINR (69.05) closed above 69 yesterday and could test 69.10/15 on the upside before coming off from there. Resistance near 69.25 is likely to hold in the medium term pushing Dollar-Rupee back towards 68.90/75.
INTEREST RATES
The European Central Bank (ECB) left the rates unchanged yesterday and have opened doors for more easing going forward. Whether the easing will be in the form of rate cuts or asset purchases is not known and decided as of now. The ECB President ruling out the possibilities of a recession at the moment has reduced the hopes in the market that the central banks may not go ahead with easing at a much faster pace than anticipated. This in turn has helped the bond yields to bounce yesterday. All eyes will be on the US Fed now which is scheduled to release its monetary policy next week on Wednesday (July 31)
The US Treasury yields have moved up across tenors with the near-end witnessing a sharp rise compared to the far end. This has reduced the chances of a dip that we had mentioned yesterday. The 2Yr (1.85%) and 5Yr (1.85%) were up 4 bps each while the 10Yr (2.07%) and 30Yr (2.60%) were up 2 bps and 1 bps respectively. The 2Yr and 5Yr are getting strong support near 1.80%. While above 1.80% they can rise to 1.90%-1.93% in the coming days. As mentioned yesterday, the 10Yr yield has to rise past 2.10% to gain momentum and target 2.20%.
The German yields have inched higher. The 2Yr (-0.77%) and 5Yr (-0.68%) were up 1 bps while the 30Yr (0.24%) was up sharply by 4 bps. The 5Yr (-0.37%) remained stable. The 30Yr is bouncing from a key support level of 0.20%. While it holds, the yield can move up to 0.30% or even higher in the coming weeks.
The 10Yr GoI (6.5135%) has risen past 6.50% today and has negated the chances of a dip to 6.35% mentioned yesterday. The chances are looking high for the 10Yr GoI to break 6.55% and rise to 6.60% and 6.65% in the coming days. Support is at 6.42%.
