STOCKS
Euro (1.1687): Our stated 60% possibility of near term bearishness is reduced to 45% after yesterday’s break above 1.167 (on back of favourable economic data from Germany). Although the previous high near 1.172 is providing resistance, an upmove towards 1.185 in the next 1-2 weeks could happen now. However the scope on 3 day line chart of a fall to 1.145 still remains – we will alter the 45% possibility mentioned above in the days ahead, if needed. US FED minutes haven’t yet had a significant impact – possibly since many traders are still on holiday. Release of US NFP data and official announcement of US tariffs on China could be important today.
Dollar Index (94.43): Dollar Index is getting some support from the 34 days MA near 94.3. Given our view of bullishness in the Euro towards 1.185, the Dollar Index could weaken towards 93.3-93.0 correspondingly. However, trade war escalation from today onwards is a crucial factor which could push investors towards safe havens – Dollar being one of them. In that case, the Dollar Index could strengthen towards 95.5 again. Right now, given the Euro’s breach of 1.167, we give 55% probability to Dollar Index dropping to 93.
Dollar Yen (110.68): Dollar Yen has broken resistances on short term charts this week but longer term resistance near 111.5-112.0still remains strong. We had expected last week’s ranging to continue in this week, which it has, to a large extent. With the possible initiation of trade tariffs from today, investors switching to Yen (considered as a safe asset) could be the theme in the coming weeks. Given that, we could finally expect the ranging to stop next week, making Dollar Yen bearish below 110.
Euro Yen (129.35): After having ranged near 130-126 in the last 5 weeks, Euro Yen is testing resistance on both short term and long term charts. This could probably be an indication that it will finally get some direction in the next week (preferred: downward). Downside target is towards 124 (support on weekly candles) in the medium term.
Pound (1.3212): Pound has stayed stable near 1.32 but we still retain our view that it could move up towards 1.33 in the coming sessions. Repeating the medium term view mentioned earlier: In the weeks ahead, Pound seems to be bearish. A break of 1.30 would confirm medium term bearishness.
Dollar Rupee (68.95): Dollar-Rupee may/ may not rise to 69.20-40. In either case, we may see a corrective fall next week.
COMMODITIES
Global commodities look bearish just now and could eventually pull down the crude prices as well (which had some possibilities to move up).
The expected rise to 80 in Brent (77.15) may not materialize just now and could pull down Brent from current levels towards 77-76 in the near term.
Nymex WTI (72.82) could test 70-68 levels in the near to medium term before again trying to bounce back. View is bearish for now.
Gold (1255.20) has chances of testing 1270-1280 as mentioned yesterday but may be delayed while the other commodities look bearish just now. In that case Gold could remain stable in the 1260-1240 region for a few more sessions before attempting higher levels of 1270/80.
Copper (2.7980) is strongly bearish, most impact coming from weakness in the Chinese stock index and currency. While the Trade war tensions loom, Copper is likely to remain weak for now. A test of 2.75 or lower on the downside would not be a surprise in the coming sessions.
FOREX
Euro (1.1659): Euro seems to be waiting for a trigger to break the range between 1.1718-1.1508. Easing German political tensions and murmurs of hawkish statements from some ECB members could trigger bullishness. At the same time, inability to gain strength on reasonably positive economic data and also the impending release of US Fed minutes have the potential to make the Euro bearish. The 34 days MA near 1.167 continues to provide good resistance and seeing the scope on 3 day line chart for a further downmove towards 1.145, the chances of near term bearishness from here could be slightly greater (60%). Let’s wait and watch.
Dollar Index (94.524): Dollar strength could react to the release of US Fed minutes later today. Given that the policy statement was hawkish, any deviation from that stance in the minutes could weaken the Dollar Index towards 94.3. However, the 3 day line chart reflects scope of a further upmove till 95.5-96.0 in the near term. Given this, we currently give slightly greater probability (60%) to the Dollar Index staying bullish in the near term.
Dollar Yen (110.40): Dollar Yen has dipped from levels near 111 (tested earlier in the week) and looks like it could soon turn bearish below 110.2. As we have been saying, higher resistance on longer term charts near 111.5 are expected to hold and could lead to Yen strength in the weeks ahead. A break of 110 could be on the cards next week.
Euro Yen (128.74): As expected, Euro Yen did stay ranged between 128-129 yesterday. With our above forecasts for Euro and Dollar Yen both being bearish, Euro Yen could drop to 127 by next week. Break of horizontal support on weekly line chart near 127 would require a week close below 127 – if and when it happens, it would make Euro Yen bearish towards 125-124 in the medium term.
Pound (1.3226): Pound could move higher towards resistance near 1.33 on daily candles in the next 1-2 sessions. In the weeks ahead, Pound seems to be bearish, with a retest of levels near 1.30 possible in the next week.
Dollar Rupee (68.74): May test 68.60 today. Could go in either direction from there.
INTEREST RATES
The US FED minutes did not impact yields significantly. While the hawkish policy statement was backed up by FOMC members remaining in favour of gradual rate hikes, some concerns regarding the impact of trade wars provided a dovish tinge to the minutes. This probably reflects that the outcome of trade related decisions is going to have a big impact on markets in the weeks ahead. Today, the first official tariff announcement from US (on China) could take place – there is some uncertainty around it, which could magnify the impact when the imposition of tariffs does happen.
US 10 year yield (2.8345%), 30 Year (2.95%), 5 Year (2.73%), 2 Year (2.54%):
Repeating yesterday’s comments: The US 10-2 Yield Spread (0.2945%) has again dipped below 0.3% to an 11 years low . We have been saying that a fall in the spread towards 0.2% in the weeks ahead seems very likely. This fall could turn out to be faster than markets are expecting.
The US 10 Year yield is sustaining it’s current slow downmove towards 2.75%. As trade tariffs start getting implemented, maybe the pace of the downtrend could become quicker.
