STOCKS
Equities look weak following the continued sell-off in the US markets. There is room on the down side for the major indices to test their major supports. Dow can test 27000. Nikkei can fall to 22500 and even 22000. DAX could be vulnerable to break 12800 and fall to 12400 or even lower. Sensex and Nifty can break their immediate supports at 38000 and 11250 respectively. Such a break can drag them to 37000 and 11000 in the coming days. Whether the indices manage to bounce-back from the key levels mentioned above or not will give a confirmation on whether a top is already in place. We will be watching the move going forward cautiously.
Dow (27500.89, −632.42, -2.25%) has declined sharply below 28000. This reduces the chances of seeing 29000-29500 level and also gives early signs that the expected corrective fall has begun. As mentioned on Monday, Dow can now test 27000. A strong break below 27000 will give a confirmation and drag the Dow further deeper to 26000-25500 thereafter.
DAX (12968.33, −131.95, -1.01%) is managing to hold above 12800 and continues to oscillate in the 12800-13200 range. If the sell-off in the US equities intensifies further, then DAX will become vulnerable to break 12800 and fall to 12400 and even 12000 in the coming days. Such a fall will negate the bullish view of seeing 13800 that we have been mentioning for some time. We will have to wait and see.
Nikkei (22908.97, −365.16, -1.57%) has declined below 23000 and can now test 22500. The fall can extend up to 22000-21800 in case of a further break below 22500 seen. For now the chances of seeing 24000 stands reduced and will get completely negated on a fall below 22000.
Shanghai (3273.14, −43.27, -1.30%) has tested 3250 as expected and can extend the fall to 3200-3180 (the lower end of the broad 3180-3470 range) now. It will have to be seen if Shanghai can bounce-back from the 3200-3180 region and keep the range intact or not.
Nifty (11317.35, -37.70, -0.33%) is struggling to breach 11400 decisively. Following the sharp sell-off US and Asian markets, Nifty might turn weak to break below 11250 and fall to 11000 in the coming days. Whether the fall will extend beyond 11000 or not will have to be watched closely. It will also negate the chances of seeing 11500-11600 and higher levels that we have been expecting for some time.
Sensex (38365.35, −51.88, -0.14%) on the other hand can break 38000 and fall to 37000 on the back of the weakness in the global equities. Whether the fall can extend beyond 37000 or not will have to be seen.
COMMODITIES
Commodities are not as bearish as the equities (refer equities section above) except Crude. Gold and Silver are poised for a rise from current levels towards 1980-2000 and 29-30 respectively and could get the trigger on a fall in Dollar Index as resistance at 94 holds (refer Forex section below). Copper has dipped a bit but has scope for bullishness while above support at 2.95. Crude prices have fallen sharply over the last 2-3 sessions as a possible rounding top formation is in place on the charts. While the formations stand valid we may have to allow for a sharper dip towards 37.50-35.00 on Brent and 35-33 on WTI respectively before a bounce is seen in the longer run.
On Monday Crude prices fell after the Saudi Arabia’s oil company Aramco cut October official selling rate . Crude prices fell further yesterday after Trump announced that he would extend the existing moratorium on oil drilling parts of Florida’s, South Carolina’s, and Georgia’s coast. Brent (39.57) and WTI (36.52) have both fallen sharply and could test immediate supports at 39.32 and 36.43 respectively today. A break below these supports look likely looking at the downward momentum and could drag prices towards 37.50-35.00 (Brent) and 35-33 (WTI) in the next few sessions.
Gold (1935.20) remains above 1920 and maintains the triangle pattern on the daily candles. While above 1920, there is scope for a sideways trade between 1920-1960 for the next 1-2 sessions before a sharp bounce is seen towards 1980-2000. Only a fall below 1920 and further below 1900 would force us to revise our projections to the downside, which looks less likely for now.
Silver (26.75) has moved lower too and need to remain above 26 in order to re-initiate a rise towards 28-30 over the next 1-2 weeks. View is bullish while above 26.
Copper (3.0235) may see short corrective dip within the 3.10-2.95 region. A break below 2.95 is not expected and while the price trades above this support, we continue to look for an eventual rise to 3.15/20. View is bullish for Copper while above 2.95.
FOREX
Dollar Index is headed towards 94 and while that holds and produces a fall, we expect Euro to bounce from 1.1750/68, EURJPY to limit its fall to 124, USDINR to limit its rise to 73.90. Pound and Aussie look bearish for the next few sessions and could be headed towards 1.2820 and 0.71 respectively. USDCNY may rise towards 6.87. Overall while Dollar Index remains below 94 and Euro above 1.1750, currencies could see some positive movement next week. Only a break above 94 if seen on Dollar Index and a corresponding break below 1.1750-1.17 on Euro would force us to revise our projections.
Dollar Index (93.48) has risen slightly and is headed towards crucial resistance at 94 which if holds could lead to a fall back towards 93-92 and initiate strength in currencies across the globe. Unless 94 break to the upside, Dollar Index looks bearish for a rejection from 94 back towards 93-92.
Euro (1.1777) has important support near 1.1768-1.1750 which could be tested today but while the support holds an assuming a fall in dollar Index, we remain bullish on Euro for a rise back to 1.19-1.20 soon.
EURJPY (124.76) has broken below 125 and could now be weak towards 124 by next week. An expected bounce in Euro if seen could limit downside for EURJPY at 124.
Dollar-Yen (106.27) remains stable and is broadly trading in the 107-105 region as mentioned yesterday. An initial rise to 106.80-107.00 is possible followed by a fall towards 105.
Aussie (0.7220) could fall to 0.71 in the near term and looks weak just now.
Pound (1.2964) has fallen sharply and look bearish towards 1.2820 while below 1.30. Near term looks bearish.
USDCNY (6.8510) has risen well and could rise towards 6.87 in the next few sessions.
USDINR (73.60) closed higher as warned yesterday and could now be headed towards 73.70/90 before a dip from there is seen.
INTEREST RATES
The sharp sell-off in the equities has dragged the US Treasury yields sharply lower. Failure to see a follow-through rise will now keep the Treasury yields under pressure and can drag it further lower in the coming days. The German Yields are moving down to test their supports as expected. They look vulnerable to break the supports and extend the downmove going forward. The 10Yr GoI has moved up and will have room to test 6.10% if it manages to breach 6%.
The US 2Yr (0.14%), 5Yr (0.26%), 10Yr (0.67%) and the 30Yr (1.40%) Treasury yields have come-off sharply especially at the far-end. The 10Yr has failed to sustain above 0.70% and has reduced the chances of seeing 0.80% on the upside. Inability to bounce-back from here can drag it to 0.60% and even lower in the coming days. The 30Yr has been struggling to breach 1.50% decisively and will become bearish to test 1.30%-1.25% on a break below 1.40%.
The German 2Yr (-0.72%), 5Yr (-0.71%), 10Yr (-0.50%) and the 30Yr (-0.05%) are coming down closer to their key supports in line with our expectation. The bias is turning negative for the German Yields to break below their respective supports at -0.52% (10Yr) and -0.11 (30Yr). Such a break can drag the yields lower to -0.60% (10Yr) and -0.20% (30Yr) initially and then further lower eventually.
The 10Yr GoI (6.0008%) is getting intermediate support at 5.95% and has bounced-back to test 6% again. We expect the yield to move up further towards 6.07% and 6.10% in the near-term. Thereafter the broader downtrend can resume.
