STOCKS
Equity indices have moved up over yesterday and today, towards the higher end of the ranges they have been in through August, the trigger for the rally being some positive sound from China about continuation of trade talks in September. However, it is to be seen whether the market sustains the rally today and whether it manages to break above the range resistances next week. Or not.
For the Dow (26362.25, +326.15, +1.25%), the relevant range resistance is 26500. A break thereof (if seen) might set up a rally to 27100.
For the Nikkei (20701.50, +240.57, +1.18%) the relevant range resistance is 20800. Its rise yesterday has been aided by a rally in Dollar-Yen (106.50) as well. Should Dollar-Yen now manage to rise past 107.00, it will help the Nikke to rise past 20800.
The Shanghai (2905.79, +14.87, +0.51%) also trades higher today. It might attempt to rise towards 2950, but we have to be aware that that is a strong range resistance for September, the overall range being 2950-2850.
Interestingly, Indian Equities are likely to outperform Chinese stocks over the coming months. Yet, the Nifty (10948.30, -97.80, -0.89%) will have to break above the range resistance at 11100-11200 to acquire proper bullishness all over again. Similarly, the Sensex (37068.93, -382.91, -1.02%) will have to break above 37750-38000 to withstand bearishness.
The DAX (11838.88, +137.86, +1.18%) saw a decent rally yesterday and is testing its range resistance at 11850-70 right now. It will be interesting to see whether this holds or breaks today.
COMMODITIES
Markets getting a breather on the US-China trade war front have dragged gold and silver on profit booking. Gold and silver are now at a key short-term support which if broken can drag the prices further lower. Wednesday’s inventory data that showed a sharp fall in the US crude stocks is supporting oil prices to move higher. Brent and WTI has room to rise further in the near-term before reversing lower again. Copper is inching higher and looks positive to move further up in the near term.
Gold (1525) has come-off sharply within its 1525-1555 range. 1519 is an important level which needs to hold to produce a bounce again to 1550-1555. A break below 1519 can drag gold lower to 1507 and 1490.
Silver (18.15) surged to test 18.70 as expected and has reversed sharply lower. While it holds above 18, a sideways consolidation between 18 and 18.70 can be seen for some time. But a break below 18 can drag it to 17.75 and even 17.50.
Copper (2.57) has risen and seems to gain momentum for a further rise to 2.63-2.65.
Brent (61) has surged and is coming closer to key short-term resistance levels of 61.30 and 61.50 which can be tested now. It has to be seen if Brent can rise past 61.50 which will pave way for a further rise to 62.30 and 62.40 and avoid a fall to 60-59.80 again.
WTI (56.67) looks relatively stronger than Brent and can rise to 58 on a strong break above 57. Cluster of supports are poised in between 56 and 55.50.
FOREX
Dollar has risen and is closer to a key resistance which if broken can take it further higher. Euro has declined below 1.1060 and is under pressure. Dollar-Yen has risen sharply but has key resistances ahead which needs to be broken to avoid a fall again. Pound and Aussie look bearish. USDCNY is holding below a key resistance and can fall on a break below 7.14. Dollar-Rupee need to break below 71.74 to declined further and negate a rise back to 72 again.
As expected, the Dollar Index (98.47) has risen to test 98.55. However, a strong rise past 98.55 is now needed to see the current upmove extending towards 99. While below 98.55, a fall to 98 and 97.50 cannot be ruled out in the coming days.
Euro (1.1050) has declined below 1.1060 and has reduced the chances of an immediate rise to 11135-1.1165 that we had expected yesterday. A crucial support is at 1.1030 which needs to hold to produce a bounce-back move to 1.11 and avoid further fall towards 1.10 and even lower.
Dollar-Yen (106.45) has risen sharply breaking above 106 and has eased the danger of it revisiting 105-104.5 levels. 106.75 and 107 are the next important levels to watch. A strong break above 107 will be bullish to test 107.3-107.5 and even higher levels.
EUR-JPY (117.63) continues to oscillate between 117 and 118 and remains unclear. While below 118, the bias is negative for the cross to break 117 and fall to 116.
Aussie (0.6720) remains lower and weak to test 0.6700 as expected. As mentioned yesterday, from a slightly bigger picture Aussie looks vulnerable to break 0.6700 and fall even to 0.6635 in the coming weeks.
Pound (1.2182) remains under pressure and has declined below 1.22. The outlook is negative to test 1.21 and even 1.20 again in the coming weeks. 1.22 and 1.2270 are the key resistances that can cap the upside.
The crucial resistance at 7.17 on the USDCNY (7.1532) is holding well as expected. However, a strong break below 7.14 is now needed to drag the pair further lower to 7.12-7.11.
USDINR (71.8050) has come-off sharply from 72.08 yesterday and can fall further to 71.57-71.50 if it manages to break below the immediate support level of 71.74.
INTEREST RATES
US Treasury yields take a breather after the recent positive development on the US-China eased the concerns. China had indicated that it will not retaliate and will want to proceed the talks with a calm attitude. The Treasury yields have bounced back across tenors and might get some relief in the near term. However, the broader picture is still weak and there is room for a fresh fall. The German yields continue to remain weak and keeps our bearish view intact. The 10Yr GoI can trade sideways in the range of 6.50% and 6.63%.
The US 2Yr (1.54%), 5Yr (1.42%) and 10Yr (1.52%) were up 2bps, 4 bps and 5 bps respectively while the 30Yr (1.98%) was up much sharply by 7 bps. The 10Yr has resistance at 1.55% a break above which can take it further higher to 1.60% next week. Similarly, the 5Yr has resistance near current levels at 1.44% which needs to be broken for it to extend the upmove towards 1.48% and 1.50%. Inability to breach 1.44% can drag it back to 1.34% and target 1.30% thereafter.
The German yields, 2Yr (-0.92%) and 5Yr (-0.91%) were down 4bps and 2 bps respectively while at the far end, the 30Yr (-0.19%). The 10Yr (-0.70%) remained stable. The broader bearish view remains intact and we expect the 10Yr German yield to fall towards -0.80% and -0.90% while the 5Yr can test -1% on the downside.
The 10Yr GoI (6.5505) has come-off sharply from 6.63% yesterday. A dip to 6.53%-6.50% looks likely while it remains below 6.60%. Broadly, we expect the 10Yr GoI to remain in a sideways range of 6.50%-6.63%.
