STOCKS
Dow (24322.34, +0.99%) and Dax (12500.47, +0.63%) have both risen from previous levels. 23500-23550 is crucial levels for Dow and a sharp rise from here is necessary to push the index to much higher levels in the medium term. Else the index is likely to trade within 23550-25000 region in the near term.
Dax on the other hand, tried to rise a bit from 12300 but 12600-12700 continues to remain an important resistance for the medium term. Unless a sustained break above 12700 is seen, the index may again come off towards 12300-12200 in the next week.
Nikkei (22413.85, +0.42%) moved up to almost test resistance near 22600. A break on the upside, if seen could be a signal of further strength coming up in the near term. Note that the Dollar Yen (109.25) has been moving up sharply and if it continues to move up towards 110, Nikkei could get stronger next week.
Shanghai (3064.48, -0.34%) is weak and is trading just above support at 3050. Watch price action near current levels. A break below 3050 could make it vulnerable to a fall towards 2900 or lower. Else a bounce back towards 3100-3150 could be seen.
Nifty (10617.80, +0.45%) continued to close at higher levels despite weakness in the Indian Rupee. A close above 10600 yesterday was quite a surprise and does not indicate any weakness in the bulls. Some dip could be seen today if the USDINR rises to levels past 67. Keep an eye at levels near 10600-10650.
COMMODITIES
Brent (74.46) and Nymex WTI (67.95) are stable just now. While WTI has some scope of rising towards 69-70 in the near term, Brent could trade in the 72-76 region in the medium term.
Gold (1317.60) is on its way down towards our mentioned 1310-1300 levels. Near term looks weak just now. A bounce from 1310-1300 could be expected in the medium term.
Copper (3.1335) is stable with no major movement just now. Near term likely to be ranged in the 3.10-3.18 region.
FOREX
The ECB struck a slightly dovish tone yesterday while maintaining status quo on all policy decisions. Draghi did acknowledge the slight moderation in growth of the past 4 months but also re-asserted confidence in the longer term growth prospects for the Euro region. The absence of any hint of hawkishness in the ECB stance has led to the Euro (1.2111) breaking below 1.215 and testing a low near 1.2096 yesterday. In our Apr ’18 Euro report, we had expected a decline towards 1.20-1.17 to begin later after June – however, the downtrend seems to have started already. Euro could now possibly move lower towards downside target of 1.195 (daily line chart) in the next couple of weeks. The chances of a rise back from these levels seem bleak now.
Dollar index (91.535), like the Euro, has breached crucial levels in the past week and could now target 92.5 in the weeks ahead (daily line chart) as the Euro tries to move towards 1.195. As US yields also rise, the traditionally positive correlation between Dollar strength and US Yields could start surfacing again in the months ahead (the correlation had not been working out since the beginning of 2018).
Dollar Yen (109.16) : Dollar Yen is forming an upward channel on the 3 day candles and tested resistance in the channel near 109.5 yesterday. It could now move down towards support in the channel near 108.5 and rise again from there. This uptrend could be capped till 110.0-110.5, after which Dollar Yen could dip. As mentioned yesterday, the current rise has been in line with our Apr ’18 Yen report.
Euro Yen (132.19) has broken support on daily candles and could move down towards support near 131 on weekly candles next week. A target of 108.5 on Dollar Yen and 1.2075 on the Euro also yields a target of 131 for the Euro Yen.
Pound (1.3924) did move lower towards 1.3895 yesterday and could test crucial long term support level near 1.385 on weekly line chart in the coming week. We are expecting the Pound to bounce soon from this strong support level. In the medium term, we expect it to target long term resistance level near 1.46. However, if the current support breaks, Pound could turn very bearish in the medium term.
Dollar Rupee (66.755): Upside might be limited to 67.20 for next week. Immediate Support at 66.70.
INTEREST RATES
Draghi’s dovishness has led to a dip in US yields with the 10 Year moving back below 3%. Our Apr ’18 US Treasury (available on demand) report predicts a medium target of 3.2%-3.3% (10 Year), 3.4%-3.5% (30 Year), 3.15% (5 Year) and 2.75% (2 Year). We also expect some more yield curve flattening in the next month followed by steepening after that, as yields bounce from long term supports.
We repeat that the recent upmove in US yields has happened on back of positive sentiment around the US economy’s growth and due to the rise in Crude towards 74-75.
US 10 Yr Yield (2.97%), 30 Yr (3.16%), 5 Yr (2.81%), 2 Yr (2.48%):
The US 2 year yield (2.48) continues to stay near levels seen yesterday and could see a short term correction towards 2.45% (earlier mentioned as 2.40%).
The 10 Year yield (2.97%) has dipped below 3% but could again rise back above it soon. Our preference is for it to stay within 3.0%-3.2% (max 3.3%) till June. Let’s wait and watch.
The 30 yr yield has dipped below crucial resistance near 3.2% again. Our preference is for it to stay within 3.2%-3.4% (max 3.5%) till June.
