STOCKS
Overall global stocks could turn bullish in the medium term. Dow, Dax and Nifty could soon test immediate support levels from where a bounce could be expected. Shanghai looks strongly bearish amongst the other indices mentioned. Nikkei could trade in the narrow region for some more time.
Dow (25971.06, +0.44%) rose to close at higher levels yesterday after testing an intra-day low of 25754. Near term looks sideways to bullish with a maximum possible low of 25600 in the near term. While above 25600, the index could start moving up towards 26000-26500 in the medium term. Failure to sustain above 25600 could initiate a fresh fall that could last longer. A rise from current levels is more preferred.
Dax (11970.27, -0.13%) could test horizontal support just above 11700 as seen on the 3-day chart which if sustains could bounce the index back towards 12000 and higher. In case a break below 11700 is seen, the index could head towards weekly support at 11600 from where it could then bounce to move upwards.
Nikkei (22571.41, -0.41%) saw a decline after rising well from support near 22200. While the upmove remains intact, it could test resistance near 23000 in the near term. An eventual contraction of price movement is seen in the 22000-23000 region which could lead to a break out on either side within the next couple of weeks.
News of threatening tariffs on additional $267 bln goods by Trump took down Shanghai (2659.87, -0.19%) sharply yesterday to levels below 2700. Weakness continues and the index looks strongly bearish on the weekly candles. If the index does not stop at 2600, downside could continue over the medium term, making fresh lows towards 2550-2500 (could be triggered on fresh news from the trade-war front). For now, we may expect 2600-2650 to hold and produce a bounce back towards 2700+ levels.
Nifty (11287.50, -1.32%) is finally into a correction mode and could test 11200 as we had mentioned in our earlier editions. While 11200 holds, the index could bounce back in the near term. Failure to hold above 11200 would open up chances of testing 10800 in the longer run (see lower support at 10800 on the weekly candles).
COMMODITIES
News impacting a rise in the Crude prices in the near term:
1. The American Petroleum institute (API) reported a major draw of 8.636 mln barrels of US Crude inventories for the week ending 7th Sep as per its report released yesterday.
2. The US EIA lifted oil price forecast and lowered the crude output expectations
3. We wait to see the supply data from the EIA which is due to be released today. Analysts expect a fall of 2.7 mln barrels in the crude supplies.
4. Traders are also considering the impact of looming US sanctions against Iran, which will target oil exports from November. Washington has put pressure on other governments to also cut imports, and many countries and companies are already falling in line and reducing purchases, triggering expectations of a tighter market.
Brent (79.56) and WTI (70.08) have both risen sharply on impact coming in from the news front as stated above. As per the charts, WTI had important support levels on the 3-day and weekly charts that we have been mentioning for the last couple of days and the support seems to be holding well for now. WTI looks bullish in the near term towards 72. Brent on the other hand seems to be pulled up by the rise in WTI, breaking above the crucial resistance near 78. Near term target for Brent is seen at 81.
Gold (1199.50) is stable without any major movement. As mentioned yesterday, while the resistance on the 3-day and weekly charts hold, downside risks towards 1180-1175 remains open for the near term.
Copper (2.6185) has dipped a bit. Although the trade war tensions are impacting the Chinese Stocks negatively, Copper may possibly remain stable in the near term. Long term support on Copper holds for now and is not likely to be breached keeping the price stable in the near term. A rise in Aussie on the other hand could possibly aid a rise in Copper. Overall some ranged move could be on the cards
FOREX
Euro (1.1592) and Pound (1.3010) continue to stay below resistances near 1.165 and 1.305-1.308 as the markets seem to await the ECB meet and US CPI data release on Thursday. Meanwhile, Dollar Rupee looks overbought – but could still make new highs in the sessions ahead.
Euro (1.1592) again came off from resistance near 1.165 yesterday. As the ECB meet (on Thursday) approaches, the Euro might trade between 1.165-1.155 for another session. Note that a break below 1.153-1.150 or a breach above 1.17 would set the trend for the next move. Preference till now has been tilted towards a bearish break below 1.15 – however chances of a rise towards 1.18 can’t be ignored.
Dollar Index (95.16) tested a low near 94.88 yesterday, but has risen from there. We have been looking for support near 95 to hold and for the index to rise past 95.5 in the coming weeks. The ECB meet and US CPI release on Thursday might well be the decider for whether 95.5 is breached or not.
Dollar Yen (111.47) seems to be breaking resistance on daily candles near 111.40 – however, there could be some resistance near previous highs of 111.76 and 112.15. Higher up, on weekly candles, we also see 112.50 as a crucial resistance. While below 111.76, it could still come down towards 110.80 in this week.
Euro Yen (129.21) has crucial resistance on weekly candles near 130. As long as Euro stays below 1.165 and Dollar Yen below 111.76, Euro Yen should stay below 130. Given our bearish tilt on the Euro-Dollar, the preference on Euro-Yen is also bearish for now.
Pound (1.3010) tested resistance on daily candles at 1.3087 yesterday and has dipped from there. While it stays above 1.295, it could go on to test the resistance once again. However, preference is for the resistance to ultimately hold and push Pound down in the weeks ahead.
Dollar Yuan (6.8737) has continued to trade near the 6.870-6.875 resistance level. There are chances of a breach of this resistance leading to a test of previous highs near 6.89. A breach of 6.89 would be very bullish.
Aussie (0.7099) dipped below 0.71 yesterday to a low of 0.7085, but did not see follow-through Stop Loss selling. At least not yet. So, the super crucial Support at 0.71 is holding on first testing. Need to see if it produces a good bounce or not. Need a rise past 0.72 to suggest chances of bottoming out.
Dollar Rupee (72.69): Monday’s high of 72.67 was exceeded yesterday and the market closed above it. So, maybe we could be in the 30% probability zone which talks of 72.80-73.00-73.50? The rise in Crude prices could be negative for Rupee strength. But remember, the market remains highly Overbought.
INTEREST RATES
India 10 year bond yield (8.1823%) is at a crucial resistance level currently. We prefer a dip from current levels. Conversely, if this resistance is breached, the next upside target would be near 8.25%-8.30%, from where the yield should then come off.
Following news points are currently important in context of US Yields:
Rise in Crude prices could be a factor driving US yields up.
New treasury auctions of 10 year and 30 year notes in this week could also potentially push US yields slightly higher.
US CPI data release on Thursday coupled with the ECB meet could both be bullish for US yields. Expectations are for strong US CPI numbers: on Friday, US non farm payroll data beat expectations and the average hourly earnings also came out strong.
Meanwhile the US-China trade conflict continues to intensify with Trump reportedly saying that tariffs might be imposed on all Chinese imports to USA (ie on $467 bn worth of goods) – if that happens, risk aversion would prevent any significant rise in yields. This is one of the major reason why we believe that the May high of 3.125% for the US 10 year yield might have been the year’s top.
US 10 Year Yield (2.97%), as per expectation has moved closer towards the 3% barrier. We expect the resistance at 3% to hold.
German 10 year yield (0.43%), as we have been saying, has risen above resistance at 0.40% and could rise towards 0.45%. A further rise beyond 0.45% would be quite bullish.
The German 5 Year yield (-0.14%) also looks quite bullish towards -0.10%. However the 30 year yield has resistance (1.11%) coming up near 1.15% – this could indicate that the 10 year and 5 year yields might not be too bullish in the near term. Maybe a dovish stance by ECB on Thursday could help in stopping the rise in German yields.
