STOCKS
Equities are gaining strength gradually. Though there is room to move up in September, strong resistances are coming up on all the major indices that can halt the rally. As such we will be looking for a sharp correction in the equity segment as we enter the final quarter of 2020. Dow has resistance in the 29500-29600 region itself and also slightly higher one at 30500. DAX and Nikkei have resistances at 13800-14000 and 24000 respectively. The resistance for Shanghai is at 3450-3470. Sensex and Nifty have room to test 11800-12000 and 40500-41000 respectively in the near-term and then see a corrective fall along with the other indices.
Dow (29100.50, +454.84, +1.59%) has risen to 29000 as expected. A test of 29500-29600 is possible now. However, we would turn cautious to see a corrective fall from the 29500-29600 region. Incase of a strong break above 29600, the upside can extend up to 30500 and then the corrective fall can happen. So broadly we will be approaching the market from the short side as the Dow rallies from here rather than building on to the longs.
DAX (13243.43, +269.18, +2.07%) has broken above 13200 in line with our expectation. Our bullish view of seeing 13800 on the upside remains intact. 13800-14000 is a strong resistance zone from where we expect a sharp corrective fall to 13000 and even lower over the next 2-3 months.
Nikkei (23555.07, +307.92, +1.32%) has risen above 23500 as expected. It is now likely to head towards 23800-24000 in line with our expectation. As we have been mentioning for some time, 24000 is a crucial resistance that can cap the upside now. A sharp corrective fall to 22500-22000 or even lower is possible.
Shanghai (3416.24, +11.43, +0.34%) is not declining below 3400 and can test the crucial 3450-3470 resistance zone again. This is a strong resistance zone that can cap the upside and keep the index inside the 3250-3450 (narrow) range for some time. A strong rise past 3470 if seen can take Shanghai up to 3600-3700.
Nifty (11535.00, +64.75, +0.56%) is sustaining well above 11400 and has moved higher. A test of 11600 is possible today. A strong rise past 11600 will pave way for 11800-12000. But thereafter a sharp corrective fall is possible. But inability to breach 11600 immediately can keep the Nifty in the range of 11400-11600 (narrow) or 11300-11600 (broad) for some time. The bias is bullish and we will be looking for a break above 11600 eventually.
Sensex (39086.03, +185.23, +0.48%) has inched above 39000 again and can move up gradually towards 40000 in the coming days. A strong break above 40000 can take the Sensex further higher to 40500-41000 from where a sharp corrective fall is possible. Supports are now at 38400 and 38000.
COMMODITIES
Crude prices fall as domestic supplies and production drop after the Hurricane Laura. But as the recovery back to earlier production levels happens we may expect a bounce in crude prices too in the near term. The EIA’s report of inventory crude draw by 9.4mln barrels for week ended 28th August has not impacted the Crude positively. But we expect downside to be limited just now. Gold and Silver look strongly bullish while downside is limited by decent trend supports on the near term charts. Only a break below these supports would negate our expected bullishness which look less likely for now. Copper has dipped back from 3.0945 yesterday but while above 2.95/3.00, view remains bullish for an initial target of 3.20.
Brent (44.48) has fallen below immediate support near 45 on the daily candles and if it does nor bounce back immediately to 45+, we may have to consider a dip and extension of the fall towards 42.50 instead of the expected rise to 47.50. Watch price action for the day to see if a rebound back to 45+ is seen. Similarly WTI (41.65) has also dipped and unless it rebounds back from 41, we remain cautious on further bullishness towards our expected 44-45. We would wait to watch price action from current levels over the next 1-2 sessions to get cue of further direction from here.
Gold (1954.20) has dipped well and is probably in the last leg of its fall within the triangle pattern seen on the daily charts. Watch immediate support near 1930/40 from where a bounce back towards 1980-2000 looks likely. A break below 1930, if seen and sustained would negate the possible triangle pattern formation and drag prices down in the medium term, tilting the bias to the negative side.
Silver (27.80) on the other hand looks perfectly within an uptrend with daily support just below 28. On the medium term charts, Silver is bullish and is poised for a sharp rise towards $30+ soon.
Copper (3.0365) dropped back after testing 3.0945 yesterday. But while above 2.95 and 3.00, view is bullish for Copper in the medium term. We keep our view of testing 3.20 intact for the medium term.
FOREX
Dollar Index may have limited scope on the upside towards 93 from where a fall is expected which could keep support at 1.18-1.1750 intact for Euro. USDJPY too may rise towards 106.80 initially followed by a fall towards 105 in the near term. Pound, Aussie and EURJPY have some room to test immediate supports from where a bounce looks possible. USDCNY needs to sustain above 6.8265 in order to move higher, else we may expect a dip towards 6.80 (looks likely over the medium term). Dollar-Rupee may trade within 72.75-73.20 for the day with possible extension to 73.50 and 72.50 on either side. On the charts, an eventual fall below 72.75 looks more likely.
Dollar Index (92.84) has immediate resistance at 93 which if holds could produce rejection and push the Dollar Index back towards 92 or lower in the near to medium term. Upside is likely to be limited just now unless a break above 93 is seen.
Euro (1.1823) has fallen as expected and could test 1.180-1.1750 before a bounce from there is seen.
EURJPY (125.60) can fall to 125.40/30 before bouncing back to higher levels. At the same time watch for a possible break below 125 which could lead to a short term dip towards 124 or lower. For the vry near term 125.40/30 may hold and produce a bounce towards 126.
Dollar-Yen (106.22) is likely to remain above 1060 for the day and may attempt to rise towards 106.60-106.85 on the upside. But thereafter we may not negate a fall back towards 105. Nikkei (refer to Stocks section above) has limited upside towards crucial resistance at 24000 and while that produces a rejection back to 22500-22000, upside in USDJPY also is likely to be limited to 106.80/85 on the upside. Watch for an immediate rise followed by a fall back towards 105 in the coming sessions.
Aussie (0.7316) is trading at crucial levels of 0.73. A bounce or break from these levels would be the deciding factor of which direction the rate would take from here. Watch price action near 0.73 just now.
1.3284 and 1.3267 are crucial supports in the very near term for Pound (1.3324) which if holds could keep the rate higher. While we may expect another dip towards the mentioned supports, a bounce back from there could be bullish for the near term. Only a sharp fall below 1.32 would initiate fresh bearishness going forward.
USDCNY (6.8285) needs to remain above 6.8265 in order to rise back to 6.85 again. Any dip below 6.8265 could drag the pair lower towards 6.81/80 over the coming sessions. Watch price action near current levels.
USDINR (73.03) could trade within 72.75-73.20 during the day with possible extension to 72.50 and 73.50 on either side. We do not look for a break above 73.50 just now but we remain fairly bearish for a test of 72.50/72.00 over the longer run.
INTEREST RATES
The US Treasury yields have declined further deeper at the far-end. The upmove that we have been expecting is not happening. In turn the Treasury yields have been falling over the last few days and will have room to move down further in the coming days. The German Yields have also come down further and can dip to test their key supports in the next few sessions. The German yields will have to bounce-back from their respective supports to avoid further fall. The 10Yr GoI can consolidate sideways for a few sessions before resuming its downtrend.
The US 2Yr (0.13%), 5Yr (0.25%), 10Yr (0.65%) and the 30Yr (1.38%) have dipped further deeper at the far-end. The rise to 0.80% on the 10Yr that we had been expecting seems to be not happening. Instead a dip to 0.60% and even 0.50% looks likely now. Similarly, the 30Yr could move down to 1.25% again contrary to our expectation of seeing a rise to 1.65%-1.68%.
The German 2Yr (-0.71%), 5Yr (-0.70%), 10Yr (-0.48%) and the 30Yr (-0.03%) Yields have declined sharply across tenors. -0.52% on the 10Yr is a crucial support. A break below it will drag the 10Yr lower to -0.60% and will negate the chances of seeing -0.30% on the upside. The 30Yr on the other hand has room to test -0.1% now. It will have to be seen if the 30Yr can bounce back from -0.1% or not.
The 10Yr GOI (5.9106%) is managing to hold above 5.90%. As mentioned in the Evening Comments yesterday, a sideways move between 5.88% and 5.98% is possible for a few sessions before an eventual fall to 5.85% and 5.75% happen in the coming weeks.
