STOCKS
Mixed picture on Equities. While the sentiment might be bearish, the charts are not unequivocally so and there are chances of near-term Supports coming up.
India, in particular, took a big hit, reacting to the 5% GDP release on Friday. The Nifty (10797.90, -225.35, -2.04%) and Sensex (36562.91, -2.06%) may well dip some more towards 10600 and 35900 over the next ten days. But, they might also see a decent short-covering rally from there over the rest of September.
Surprisingly, the Shanghai (2945.05, +0.51%) is up for the third day today, knocking on heaven’s door, its range resistance at 2950. Will it manage to break higher (for which some positive news on the US-China trade war front might be needed), or will it also succumb to overall weakness? India, which was supposed to outperform China, is currently underperforming, which is a surprise.
The Nikkei (20,624.68, -0.48, 0.00%) trades flat below its range resistance at 20800. Might dip while that continues to hold. But, a rise past 20800 (if seen) could be quite bullish for a rally towards 21400. We note also that 20173-110 qualifies as a good long-term Support.
The DAX (11910.86, -42.92) dipped yesterday, but has crucial intra-week Support in the 11850-780 region for this week. It will be interesting to see if this Support holds this week and produces a rally next week.
Although the Dow (26118.02, -285.26, -1.08%) saw a good dip yesterday, ostensibly on the back of the contraction in ISM Manufacturing index, it has a crucial Support coming up near 25750 on the 3-day Candles, which could hold this week. Whether that will produce a credible rally next week, or we will see a meltdown break below 25750-25500-25250 next week will have to be seen.
COMMODITIES
Increased risk aversion has taken gold and silver prices higher. Gold needs to break its upper end of the range to move further higher while silver remains strong and can outperform the yellow metal. Oil has bounced from the lows, but has key resistances ahead which can cap the upside and drag it lower again. Copper has bounced sharply but the upside is likely to be capped at 2.60.
Gold (1548) has risen within its 1520-1555 range and needs to see if it can breach 1555 which can then take it further up to 1585-1590. Inability to break 1555 can keep the sideways range intact for some more time.
Silver (19.47) has surged breaking above the resistance at 18.7 and looks strong. There is room on the upside to test 20.4-20.5. The region between 19 and 18.7 will serve as a strong support.
Copper (2.53) has bounced sharply from the low of 2.48. It needs to be seen if it can sustain above 2.50 in which case a rise to 2.60 is possible in the near term. However, on a bigger picture, the level of 2.60 is a strong resistance while below which a fall to 2.35 over the medium term.
Brent (58.35) has bounced from the low of 57.23 but may face resistance at 58.6 and 59 which can cap the upside. While below 59 we remain bearish on Brent to test 57-56 initially and then 54 eventually.
WTI (54.13) tested 53 and has bounced from there. However, it has cluster of resistances between 54.80 and 55.10. While below this resistance zone, WTI is vulnerable to test 52-51 on the downside.
FOREX
Major currencies get a breather as the dollar index has dipped from its higher. The dollar index have to declined further before reversing higher which can take the majors further higher in the near term. Euro can test 1.10 on a break above 1.0985. Dollar-Yen looks weak to revisit 105.5 and lower levels. Aussie has surged negating our bearish view and looks positive in the near term. Pound has a key resistance ahead which can cap the upside and drag it lower again. USDCNY has come-off below 7.17 and might see further dip in the near term. USDINR has surged above 72 and has room to test 72.73 on a break above 72.50.
Dollar Index (98.93) has come-off from its high of 99.37 and can dip to 98.55. This could delay the expected rise to 99.55-99.60 mentioned yesterday. A strong break above 99.20 is needed to gain strength and rise to 99.60.
As expected, the support at 1.0920 has held well and the Euro (1.0978) has bounced towards 1.0975. Immediate resistance is at 1.0985 which has to be broken for it extend to upmove towards 1.10 and avoid a fall again to 1.0950-1.0920.
Dollar-Yen (106.02) seems to lack strength to break decisively above 106.50 and can fall to 105.50-105.25. A break below 105.75 can accelerate the fall. Strong resistance is in the 106.20-106.25 region.
EUR-JPY (116.40) is getting support in the 116-115.85 region and can see a relief rally to 117-117.15 before it reverses lower again. As mentioned yesterday, the bigger picture is weak and the cross can break 116 and target 114 on the downside in the coming week while it remains below 118.
Contrary to our expectation, Aussie (0.6780) has surged above 0.67 and has negated the fall to 0.6635 which we had been expecting over the last few days. The near-term view is now positive for the Aussie to test 0.6800-0.6820 in the coming sessions while it remains above 0.6750.
Pound (1.2100) broke below 1.20 but has bounced sharply from the low of 1.1959. A test of 1.2150 is likely after which the pair can resume its downtrend again towards 1.20 and even lower.
USDCNY (7.1661) has declined below the key level of 7.1680 mentioned in the evening comments yesterday. If it manages to decline further below 7.16, a fall to 7.14 can be seen in the near term.
This might give some relief to the Dollar-Rupee (72.4050) which has surged above 72. Support for the Dollar-Rupee is in the 72.25-72.20 region which has to hold to move the pair above 72.50 targeting 72.73. A break below 72.20 on the other hand can see a test of 72.10-72.05 on the downside.
INTEREST RATES
The fear of slow-down and a recession has increased after the US manufacturing PMI data released by the Institute for Supply Management declined to 49.1 thereby entering into the contraction phase. As a result the US Treasury yields have declined sharply especially at the near end. The US yields remain bearish and can extend the fall. The German yields remain stable within their overall downtrend. India 10Yr GoI can dip to test 6.43%-6.42% in the near term.
The US Treasury yields have declined sharply at the near-end. The 2Yr (1.45%) and 5Yr (1.33%) are down 6 bps each. The 10Yr (1.47%) dipped 3 bps while the 30Yr (1.96%) is stable. The 5 Yr has a crucial support at 1.25% which will need a close watch as this support is likely to halt the current downtrend and produce a bounce. The 10Yr has support at 1.28% which can be tested in the coming days.
The German 2Yr (-0.93%), 5Yr (-0.93%), 10Yr (-0.71%) and 30Yr (-0.20%) remained broadly stable within its overall downtrend. As being reiterated here, the 10Yr can test -0.80% and even -0.90% on the downside. The 5Yr can fall to -1% in the coming days.
The 10Yr GoI (6.5190%) has declined below 6.55% and can test 6.43%-6.42% on the downside while it remains below the 6.55%-6.57% resistance region.
