STOCKS
Some sign of relief for the equities as the US announced removal and also delay in tariffs on the Chinese good. A strong short-covering rally was witnessed in Dow overnight and the Asians are following suit. Though the recent developments can push the equities further higher in the near-term, will this get converted into building up of fresh long positions remains a question? We will have to wait and see. However, on the charts the outlook is still looking bleak for equities.
Dow (26279.91, +372.54, +1.44%) has bounced sharply and has delayed the expected fall to 25500 mentioned yesterday. However, the index has to surpass the key resistances at 26550 and 26750 in order to turn the sentiment positive. While below these resistances we remain bearish on the Dow to see 25500-25000 on the downside.
Similarly, DAX (11750.13, +70.45, +0.60%) has to surpass 11900 to bring back the bullish view and negate the bearish view for a fall to 11350-11300 which we have been expecting for some time.
Nikkei (20594.92, +139.48, +0.68%) has resistances at 20800 and 21000 which can cap the upside in the short term and keep the index pressured on the downside to test 20000-19900 over the medium term.
Shanghai (2817.56, +20.30, +0.73%) has risen above 2800 and has reduced the chances of a fall to 2730-2700 for now. While it sustains above 2800, a rise to 2860 is possible in the near term.
Nifty (10925.85, -183.80, -1.65%) and Sensex (36958.16, -623.75, -1.66%) have declined sharply below 11000 and 37000 respectively yesterday. Though they can bounce taking cues from the global markets today, key resistances are at 11200 (Nifty) 37800 (Sensex) which has to be broken to ease the downside pressure and move further higher and avoid the revisit of 10800 (Nifty) and 36500 (Sensex) on the downside.
COMMODITIES
Commodities are mixed just now. News that the 10% tariffs on Chinese goods expected to be imposed from 1st September has been delayed to 15th December for most of the items; has impacted the price movement in the metals. Copper may test resistance while Gold and Silver could dip a little more in the next 1-2 sessions.
Crude prices have risen in line with our expectations. Along with the news from the US-China front, the American Petroleum Institute (API) has estimated a crude inventory build of 3.7mln barrels for week ended 8th Aug compared to the analyst expectations of a 2.761 mln barrels draw.
Brent (60.79) and Nymex WTI (56.48) has risen as expected and both Brent and WTI needs to rise further from current levels to turn bullish for the near term. Immediate resistance seen on the upside at 62 and 58 respectively.
Gold (1512) also fell sharply reacting to the news of delay in tariffs on the Chinese goods. The price tested 1550 yesterday and could have some scope of testing 1586 on the upside in this month. Support near 1500 is to be watched just now. While that holds, Gold could trade above 1500 for the rest of the week.
Silver (16.92) has also come off sharply and could test 16.8/75 on the downside before again rising back from there.
Copper (2.6160) has risen but could face interim resistance near 2.65 from where a dip could be expected. Very near term is bullish. Watch price action near 2.65.
FOREX
US-China trade war news has been the major mover for the currencies just now. While some positive news of delay in tariff imposition has lead to some relief movements in some of the currencies, we may have to watch if the movements sustain in the medium term.
Dollar Index (97.76) is likely to trade below 98, which is the immediate resistance holding just now. If the index is unable to rise past 98 just now, it could be vulnerable to a fall towards 97.0-96.75 in the near term.
Euro (1.1175) saw a dip from 1.1229 yesterday but has not been able to rise past 1.1250 in the last few sessions. If the Dollar index remains weak, we could expect a test of 1.1300-1.1350 on the Euro in the next few sessions. The sideways consolidation is likely to end soon taking Euro higher.
Dollar-Yen (106.30) has risen sharply as Gold saw a sharp fall. But 107 is a immediate resistance and would be important to see if the pair manages to move past 107 just now. A rise could take it higher towards 108.50-109 again; else if 107 holds, USDJPY could fall back towards 106.0-105.50 in the near term.
EUR-JPY (118.83) tested 119.5 yesterday before trading slightly lower today. A fall from here could take it back towards 118. A rise above 119.50 is needed to turn bullish towards 120.
Aussie (0.6790) has moved up on upmove in Copper. While support near 0.6750 holds, Aussie looks bullish towards 0.6850-0.6900.
Pound (1.2056) could trade above 1.20 just now and remain stable in a sideways range for the near term. A rise above 1.21 would be important to take it higher. Near term looks ranged.
USDCNY (7.0232) has come off 7.0683 and while that holds, the Yuan could strengthen towards 6.95/90 in the near term.
USDINR (71.41) rose sharply yesterday but after the US-China tariff news it would be important to see if the currency pair opens lower today. While overnight the Rupee has been reported to trade near 70.95 on the NDF, it would be crucial if USDINR opens lower today. Failure to trade below 71.00 on the OTC could keep the upside chances of testing 71.56 alive on the upside for the near term with some possibilities of a trade between 71.00-71.41 for the next 1-2 sessions.
INTEREST RATES
The recent development of the US-China trade tussle has given some relief for the yields. The US Treasury yields have bounced slightly, but will have to be seen if they can sustain higher or not. The broader picture continues to remain weak and the Treasury yields are likely to fall again after a near-term consolidation/correction. The German yields continue to fall and keeps the bearish view intact.
The US 2Yr (1.64%), 5Yr (1.55%) and 30Yr (2.16%) were up 4bps, 2bps and 3bps respectively while the 10Yr (1.68%) remained stable. While above 1.6%, the 2Yr yields can rise to 1.72% and 1.75% before we see a fresh fall again targeting 1.5% and even lower levels thereafter. The 10Yr has to rise past 1.70% to gain strength and move further higher to 1.75%.
The German yields were down across tenors. The 2Yr (-0.89%) and 5Yr (-0.85%) were down 2bps each while the 10Yr (-0.61%) and 30Yr (-0.13%) were down 3bps and 5bps respectively. The outlook continues to remain bearish. As mentioned yesterday the 10Yr German yield has room to test -0.83% in the coming weeks.
As expected, the 10Yr GoI (6.5254%) has risen above 6.50%. Resistance is at 6.56% which can cap the upside for today given the short-covering witnessed in risky assets. While below 6.56% a pull-back to 6.43% is possible in the near term. However, in case of a break above 6.56%, a rise to 6.62%-6.68% is possible.
