STOCKS
Dow (25175.31, -0.10%) has not been able to break above 25500 and instead has been coming off from there gradually to test 25000 in the next few sessions. This is contrary to our expectation of arise towards 25750 and higher. Now daily candle support near 25000 is important and a bounce from there is preferred which could again take the index back towards 25500. Near term is bearish towards 25000.
Dax (13107.10, +1.68%) has moved up sharply after the ECB meeting yesterday and broken above our mentioned resistance near 13100. It is important to watch price action here. A break above 13100 if sustains could take it higher towards 13400 and higher in the coming sessions next week. Else a fall back to levels below 13100 would be indicative of some bearishness next week.
Nikkei (22827.77, +0.39%) has neither seen a sharp rise above 22800 nor is it falling off to levels below 22800. There seems to be some sideways range-trade in the 23000-22800 region for now with small movements. Overall a dip in Dollar Yen could restrict further upside for Nikkei in the near term.
Shanghai (3023.79, -0.67%) is coming off towards 3000 and looks weak just now. It would be important to see if the index breaks below 3000 eventually. Near to medium term looks bearish while below 3050.
Nifty (10808.05, -0.45%) came down for the second session yesterday after testing resistance at 10900. While 10900 holds, the index looks bearish towards 10700-10650 in the medium term.
COMMODITIES
Brent (75.84) and WTI (66.94) have dipped a bit and could remain stable for now. Brent came off from 77 yesterday and may test lower levels of 75 in the next 1-2 sessions. WTI on the other hand has some scope of bullishness towards 68.
Gold (1302.10) has moved up above 1300. While the rise continues, Gold is likely to move up towards 1320-1325 in the near term.
Copper (3.2094) has bounced from 3.20 in line with our expectation and could move back towards 3.2250 and higher in the coming sessions.
FOREX
Euro (1.1564): The ECB’s policy stance turned out to be a mix of hawkishness (quantitative easing ending by Dec ’18) and dovishness (rates remaining constant till 2019 summers). The hawkish part seemed already factored in by the markets, while the dovishness came as a surprise, thereby leading to a drastic weakening of the Euro (against our expectation). The Euro saw its biggest intra-day fall since Dec ’16, as it fell from 1.185 towards a low near 1.156.
On technical charts, it is testing crucial support on 3 day and weekly candle charts near 1.155. However there is lower support near 1.145 (on daily line chart) which could still be tested. While above 1.145, we can expect Euro to rise back towards 1.160-1.165 next week. A break below 1.145-1.140 might open up levels near 1.12.
Dollar index (94.95): Along with the ECB’s weakening effect on Euro, the Dollar Index rose also due to the positive US Retail Sales data for May ’18 (beating expectations). It is now testing crucial resistance on weekly candles near 95 and has higher resistance near 96 on the 3 day line chart. A breach of 96 could make Dollar Index bullish towards 97.5.
Dollar Yen (110.74): Dollar has strengthened against the Yen as well and is currently testing resistance on the daily line chart near current levels. There is higher resistance between 111 and 112 on 3 day and weekly line chart. We have been preferring for this resistance to hold. The Bank of Japan has maintained status quo in its policy announcement but has also offered a bleaker view on inflation. This could be negative for Yen strength. We will have to wait and watch if this weakens the Yen above 111-112.
Euro Yen (128.06): Given the Euro’s fall, Euro Yen dropped to lows near 128 (against our expectation). It is still near horizontal support on weekly line chart and might rise from here if Euro respects support near 1.155 and Dollar Yen rises closer to 111-112.
Pound (1.3252): As expected, Pound has moved lower towards 1.32 (having seen a low near 1.325 already). Support near 1.315 on daily candles could be a possible downside target for next week.
Dollar Rupee (67.625): Dollar Rupee could keep ranging between 67.5-67.8 today. Euro’s drastic weakening could have a negative impact on Rupee strength.
INTEREST RATES
After the US Fed’s hawkishness day before yesterday, the ECB came out with a mixed policy. On the hawkish side, it indicated that net asset purchases woud be halved to 15 billion Euros from Oct ’18 to Dec ’18 and after Dec ’18, they would be completely stopped. However the dovish bit of the policy statement overpowered the hawkish bit – key interest rates are to remain constant till atleast the summers of 2019. This has led to a fall in bond yields across Europe and US yields have dipped a bit. The German 10 Year yield has dipped to 0.43% from levels near 0.51% and could fall further towards support near 0.3% on medium term chart.
Moreover US Retail Sales data also came out positive. The expectation of a 0.4% m-o-m increase was comfortably surpassed as Retail Sales grew by 0.8% in May ’18.
Earlier, the US Fed had hiked rates by 25 bps. 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.
Current US yields: US 10 year (2.93%), 30 Year (3.05%), 5 Year (2.80%), 2 Year (2.56%)
The Bank of Japan has maintained status quo in its policy statement few minutes back but has given a bleaker view on inflation. This could lead to a fall in Japanese bond yields.
