STOCKS
While Dow (26246.96, +0.71%) trades below 26250, there is scope of a fall towards 26000-25750 levels in the near term. A rise above 26250 and further above 26500 is necessary to trigger a sharp upmove in the longer run.
Dax (12157.67, +0.51%) moved up yesterday rising above 12150. If the rise sustains, near term could see a rally towards 12300 again ; else a fall back towards 11900-11800 looks possible.
Nikkei (23743.28, +1.37%) having broken the important resistance at 23000 is now technically bullish as the charts suggest the rally to continue towards 24000-24200 in the near term. Other than the technical charts, hope of PM Shinzo Abe winning the LDP election on Thursday is also pushing the stock markets up. This could pull up Dollar-Yen also in the near term despite the US-China trade war tensions.
Shanghai (2725.22, +0.94%) moved up as expected and is trading above 2700 now. While above 2700, the index could now start moving up towards 2800-2850 in the medium term. Near to medium term looks bullish.
Nifty (11278.90, -0.87%) closed below 11300 along with a sharp depreciation in Rupee to almost 73 at the session’s close. While below 11300, there is some scope of targeting 11200 on the downside. The 21-day MA on the daily line charts could provide some support this week.
COMMODITIES
80-81 is a crucial resistance zone for Brent (79.04) and it would be important to see if that holds. Although the crude prices saw a sharp rise yesterday, Brent is trading below 80 and is expected to remain so for the next few sessions. A break on the upside if seen could set up a rise towards 85; else there could be some room to fall back to levels below 78.
WTI (69.64) also rose yesterday but came off from just below resistance near 70.50. While the resistance holds, WTI could trade in the narrow 70.50-66.00 region in the near term. We expect a fall towards 66 while resistance near 70.50 holds.
Gold (1204.10) saw a slight rise. There is good support visible on the 3-day line chart which is likely to hold and push back Gold prices towards 1230 soon. The current sideways narrow ranged movement could be good levels to buy looking at the longer term possible rally.
Copper (2.74) broke clearly on the upside while support at 2.60 held well. Sharp rise in the Chinese stocks have been a major boost. Now while the China stocks look bullish, the long term support on Copper as seen on the weekly candles is also holding well and could push up Copper towards 2.80-2.85 in the near term.
FOREX
Aussie has broken above 0.72. Similarly, EURUSD and GBPUSD might also break above 1.17 and 1.316. Dollar Index might target 93.5 next week. Could this limit Rupee weakness too?
Dollar Index (94.65): The break of support trendline on weekly candles near 95 makes the Dollar Index look bearish in the near term. On a decisive break below the 21 weeks MA at 94.48, we could start looking at downside of 93.5-93.25 in the next 1-2 weeks.
Euro (1.1670): Trendline support now at 1.165. A decisive break above the crucial 1.17 resistance might happen in the next couple of sessions, which could then target 1.180-1.185 in the near term (next 1-2 weeks). Conversely, a break below 1.1650-1.1625 would negate the near term bullish view.
Dollar Yen (112.37) has gone above its previous high near 112.17 and could now target resistance on weekly candles near 112.5 in this week. A rise above 112.5 could be quite bullish in the medium term. Check out our Sep ’18 monthly forecast report on Japanese Yen which discusses the next long term move in the narrowing contraction since 2016 : https://kshitij.com/usdjpy-forecast-payment-details-sep18
Euro Yen (131.14): Euro Yen saw a high near 131.5 yesterday and is now again trading slight above resistance near 131. It could rise towards 132 in the next couple of sessions – a breach above 132 could prove to be very bullish for Euro Yen in the near term.
Pound (1.3146) is continuing to respect the the 21 and 89 weeks MAs near 1.316 – while above 1.305, a breach above these MAs is possible in this week. A week close above this level could make Pound bullish towards 1.34 by Oct.
Aussie (0.7246) is breaching the 21 days MA near 0.7216 and it looks like previous week’s 0.7085 might have been a bottom. While above 0.715, it could now rise towards 0.73 by next week.
Dollar Rupee (72.515) If the RBI doesn’t defend 73, rise to 73.2-73.4 could happen quickly. Downside today could be limited to levels near 72.50. Offshore NDF trading near 72.70 suggests that a gap up opening might be avoided.
INTEREST RATES
As we had expected yesterday, the US 10 Year yield (3.05%) has indeed started rising towards 3.10% and could now target it’s previous May ’18 high of 3.125% over the coming few sessions. Near term charts suggest that the 10 Year German-US spread (-2.57%) could fall further towards support near -2.6% while the German 10 Year climbs to 0.5%. This will imply the US 10 Year @ 3.1%. A break below -2.6% for the spread or above 0.5% for the German 10 Year would be bullish for the US 10 Year yield and might make it breach the previous high of 3.125%.
Looking at the German 10 Year yield (0.48%) long term chart, a rise towards 0.75% in 2018 is possible – near term rise could be towards 0.6% (if 0.5% is breached). Moreover, long term chart of the German-US 10 year spread suggests that it could break below -2.6% to target long term channel support near -2.7%. Considering these possibilities, a medium term rise to 3.30%-3.45% can also not be ruled out for the US 10 Year yield.
The rise beyond 3% might have happened due to the following reasons:
The tariff imposition of 10% by US on China is much lesser than the earlier 25% and has not dented market confidence, thereby possibly lowering risk aversion
some new supply of investment grade corporate bonds might have reduced demand for US govt bonds, thereby raising the yields
there are some fears that China might choose to retaliate by decreasing their holding of US treasuries (would be bullish for yields) – in July their holding of US treasuries fell to a 6 month low of $1.171 tn from the June level of $1.178 tn
Also, keep a watch on the Japan 10 year bond yield (0.12%) and Japan 30 Year bond yield (0.85%) – a breach above 0.13%-0.14% for the 10 year yield or a breach above 0.85% for the 30 Year yield would be very bullish and could be trigger for a rise in global yields.
