STOCKS
Stocks have dipped a bit after the FED hiked rates by 25bps. Almost all the stock indices mentioned below have dipped a bit but could soon recover by early next week.
Dow (25201.20, -0.47%) is trading lower and has fallen from levels near 25320 seen yesterday. If the index fails to rise from current levels, it could come off to re-test lower support of 25000. A bounce back from 25200 would be bullish on the other hand, increasing chances of testing 25700 on the upside.
Dax (12890.58, +0.38%) tested low of 12800 and bounced back to close higher at 12890. There is some room on the upside towards resistance zone of 13000-13100. Downside could be capped at 12600 for the near term.
Nikkei (22862.73, -0.45%) is trading above 22800 and while the index remains above this near term support, there is scope for a rise towards 23200-23400 in the coming sessions. But keep an eye on Dollar Yen; if Dollar Yen comes off in the next few sessions, it would limit the rise in Nikkei and keep it ranged for some time.
Shanghai (3046.20, -0.11%) also came off a bit from levels near 3070. Sideways range in the 3025-3080 region may continue for now. A break on either side of 3025 or 3100 would be important to decide further direction in the index.
10900 is a decent resistance on the daily Nifty (10856.70, +0.13%) candle charts and while that holds, there could be some chance of a dip towards 10800 or lower in the next few sessions. In case the index remains above 10850, it could again attempt to move up towards 10900-10950 by early next week.
COMMODITIES
Brent (76.57) and WTI (66.67) are trading a bit higher today. As mentioned yesterday, we look for a rise towards 79-80 in Brent in the coming sessions and while WTI trades above 66.50, it too can rise higher targeting 68 in the next few sessions. Near term looks bullish.
Gold (1298.12) is stable as usual. A gradual rise towards 1300 and higher is on the cards for the coming sessions. Silver (16.91) is down from 17.10 and could test 16.80 on the downside before bouncing up again.
Copper (3.2394) is in a correction phase just now and the price could come off towards 3.20 as we have been mentioning for quite a few sessions now.
FOREX
Dollar index (93.55): The Fed’s 25 bps rate hike and its hawkish policy tone did pull the Dollar Index to a high near 94.03 yesterday, but it has fallen back towards 93.5 today. It probably reflects the fact that such hawkishness was already factored in by the markets. However, the ECB meet later today (expected to be hawkish as well) could have more impact. From the charts, Dollar Index looks like it could dip towards the 8 weeks MA near 93.2. A break below 93 could be very bearish.
Euro (1.1792): Markets seem unsure of whether ECB will indicate the end of its asset purchase programme (by year end) in its statement today. If that happens, Euro might breach the 8 weeks MA near 1.183 and as per our earlier stated forecast, rise towards crucial resistance near 1.1875-1.1900.
Dollar Yen (110.31): Dollar Yen touched a high of 110.85 yesterday and has come off from there towards a low of 110.09 today. If the ECB meet brings in weakness for the Dollar today, Dollar Yen might dip further. In that case, 110.85 might be proven as a top. A break below 109.5 could finally bring in medium term Yen strength.
Euro Yen (130.09): Keeping a target of 1.180-1.185 for the Euro in the next 1-2 sessions and a target near 110 for Dollar Yen, we get 130 on Euro Yen. It could range near 129-130 for few more sessions before dipping from resistance on the 3 day candles.
Pound (1.3376): As expected, Pound saw a low near 1.3309 yesterday but has moved up again. We have been saying that Pound looks bearish in this week towards levels near 1.33-1.32. However, if the ECB meet leads to Dollar weakness, that view could get negated. Let’s wait and watch.
Dollar Rupee (67.6475): Dollar rupee traded within 67.50-67.70 yesterday and may extend on either side towards 67.85 or 67.35 respectively. We prefer a test of downside levels near 67.35 at least once before the price moves higher.
INTEREST RATES
The US Fed hiked rates by 25 bps as expected. However, the language in the policy statement was clearly more hawkish than previous statements – reflected in the fact that the phrase about keeping rates low to boost the economy was dropped. The likelihood of 2 more rate hikes this year has increased beyond 50% for the first time this year. However the impact of this hawkishness hasn’t yet translated into a rise past 3% for the 10 Year yield.
The attention now turns to the ECB meet today wherein the market awaits any indication from the ECB about the end of its asset purchase programme. Even a hint of any decisiveness in ending the asset purchases could lead to a rise in German bond yields(German 10 Year near 0.48% currently).. Whether that means an outflow from US debt to European debt and therefore a rise in US yields, would have to be seen.
Current yields: US 10 year (2.9645%), 30 Year (3.0815%), 5 Year (2.835%), 2 Year (2.565%)
The 10-2 Year spread has dropped below 0.40% for the first time in 8 years. There is long term support near these levels and it needs to be seen if it holds. A decisive break below 0.40% might imply an impending slowdown in the US economy.
The US Retail Sales data release later today could also have an impact on US yields. Last month a higher Retail Sales figure had led to a rise to 3.125% for the US 10 Year yield.
