STOCKS
Crucial movement in the indices in the next few sessions. Shanghai and Nifty have already come off in the last 2-sessions, while Nikkei, Dax and Dow may still have some room for range-trade before facing rejection from the respective resistances.
25500 is an important resistance level for Dow (25326.16, -0.03%) and is likely to hold in the coming sessions, pushing the index down towards 25000 and lower. We could see 2-3 sessions of sideways trade in the 25100-25500 region before a strong rejection from 25500 is seen. A break above 25500 with at rise past 26000 could trigger sharp upmove in the longer run.
Dax (12546.33, -1.5%) saw a sharp gap down opening following the losses in the other equities. There is room for test of 12300 before it bounces back to move up eventually.
Nikkei (22541.81, +0.13%) is stuck in the narrow range of 22500-22800 and could move up slowly towards 22800 in the next 2-3 sessions. Looking at the 3-day and weekly charts, Nikkei may come off sharply towards 22000 or lower, given the medium term resistances hold.
Shanghai (2748.48, -0.71%) continued to fall sharply as 2900 resistance holds well for now. On the weekly there is scope of testing 2650 on the downside. Near to medium term looks bearish.
Nifty (11244.70, -0.89%) closed below our mentioned support near 11250. But if the index bounces back today, three could be chances of moving up in the early sessions next week. A break below 11200, if seen would make the index vulnerable to test lower levels of 11000 soon.
COMMODITIES
Brent (73.36) and Nymex WTI (68.95) bounced back from Supports on the 3-day candles. While the current rise sustains, they could start moving up in the medium term towards 78 and 72 respectively.
Gold (1216.20) has come off as expected and could test 1200 in the early sessions of next week. A short corrective bounce from 1200 is possible in the longer run.
Copper (2.7240) is headed towards 2.70. Support zone is visible in the 2.65-2.70 region which may hold in the coming week, pushing the Copper prices back to higher levels. A break below 2.65, if seen could make it vulnerable to a sharp fall in the long term. Watch price action near 2.65.
FOREX
Euro (1.1587): As per our expectation, Euro broke below support on daily candles near 1.1600-1.1625 and now looks headed downwards towards previous low near 1.1508 (could be tested anytime next week). Slightly lower down, there is also some support near 1.145 on 3 day line chart, whose break could make Euro quite bearish
Dollar Index (95.17): As expected, the Dollar Index has moved up and now looks like it could target resistance on daily line chart near 96 in the coming week – that could correspond with a test of 1.145 on the Euro. From the weekly line chart, a close above 95 today would be very bullish for the Dollar Index in the coming weeks.
Dollar Yen (111.63): Dollar Yen tested support on daily candles near 111.32 yesterday and has again moved back up. However, while below 112.15, there still remain some chances of a break below 111.30 to test lower support near 110.75. As we have been mentioning, the 112.5-115.0 region is a crucial long term resistance zone for Dollar Yen, which should cap the upside in the next 1-2 months.
Euro Yen (129.38): As per expectation, Euro Yen has broken below support on daily candles near 130 and could move lower towards 128 next week. If the Dollar Yen stays below 112, while Euro moves down towards 1.150-1.145, Euro Yen could test crucial horizontal support on weekly line chart near 127 next week. A break below 127 would be very bearish.
Pound (1.3016): The Bank of England raised rates by 25 bps as expected. As we had forecasted, the bearish trend has persisted inspite of the rate hike. Pound has broken below horizontal support on weekly candles near 1.3050. A downmove towards 1.29 (support on daily candles) in the next week now looks possible.
Dollar Rupee (68.7050): Dollar Rupee is likely to come off from 68.80 today. Next week looks bearish for Dollar Rupee towards 68.10. A close below 68.47-50 today would be important for bearishness next week.
INTEREST RATES
Day before yesterday, the US Fed’s re-assertion of the fact that the US economy’s growth is strong has made a rate hike in the September meet look almost certain. Moreover, a rate hike in Dec ’18 is also very likely. The big question that arises now is – will the Fed continue with as many rate hikes in 2019 as well? In the coming weeks, more clarity and certainty on this issue would start emerging, which might thereby be the primary determinant for whether the US 10 year yield breaks above 3.125% in 2018 or not. With Japanese and German yields looking bullish, the 2.95%-3.00% barrier is looking weaker for the 10 year yield as of now. A breach of the 3% level in the coming 2-3 sessions itself would be bullish.
US 10 year yield (2.99%), 30 Year (3.12%), 5 Year (2.85%), 2 Year (2.67%):
The US 10 – 5 yield spread (0.14%) is breaking above resistance on short term chart and could target higher resistance near 0.17% in the next 1-2 weeks. The 5 year yield also looks bullish. Consequently, this might be another signal that the 10 year yield might rise above 3% soon.
Earlier, the Bank of Japan had maintained status quo in its policy – keeping the target for Japanese 10 year yield at 0% and Japanese short term interest rates at -1.1% – but it also announced that its policy framework will be more flexible in future for the long term yield. This has opened up the possibility for Japanese 10 year yield to be more reactive to positive news about the Japanese economy.
This week, the Japanese 10 year yield (0.12%) has breached the crucial 0.11% level for the first time in over 2.5 years. This upmove could now continue till levels near 0.20%-0.25%.
As we mentioned yesterday, the German 10 year bond yield (0.46%) is breaking above resistance on short term and medium term chart and could target levels near 0.50%-0.55% in the coming 1-2 weeks.
