STOCKS
Major stock indices are trading low and have fallen sharply in the last trading session. While the correction deepens, stock indices may be vulnerable to further losses if immediate recovery is not seen.
Dow (25191.43, -0.50%) and Dax (11274.28, -2.17%) declined further yesterday. Dow almost tested 24750 before bouncing back from there while Dax closed in the red. Dax could continue its fall towards 10900 if it does it recover immediately from current levels while Dow could fall towards 24000 if it sees another dip below 25000. There are crucial support levels just now on both Dow and Dax and a break or bounce from here would decide the direction for the near term.
Asia-Pac is also trading lower as expected. Nikkei (21973.55, -0.17%) and Shanghai (2591.34, -0.13%) have also fallen and look bearish for the near term. Nikkei clearly has broken below 22000 and while the bears dominate, Nikkei could continue to fall towards 21000-20800 levels in the near term. Decline in Shanghai from 2650 could now push the index towards 2450 again in the next 2-3 sessions before a bounce from there. Overall near term looks bearish.
Nifty (10146.80, -0.96%) could well follow other stock indices and open lower today. But some recovery if not seen today could gradually drag the index towards 10000. Below 10000, the fall could extend towards 9700-9500 in the longer run if the bears take over in the near term. We prefer a bounce from 10000 in the medium term.
COMMODITIES
Crude prices have declined sharply. Pressure from the stock markets and assurance by Saudi Arabia to meet the world oil demands have triggered the fall. The prospect of weaker-than-expected economic growth as projected by some forecasters this month like the OPEC and the International Energy Agency are enough to keep traders under pressure and to trim their bets on crude prices rising in the near term.
Brent (76.71) fell as expected but was rather quick than our expectations. As mentioned yesterday, there is support in the 76-74 region and a bounce from there looks likely. A test of 76 has already been seen and if the Brent does not recover from here, it could target 74 in the near term.
WTI (66.58) on the other hand has support at current levels and needs to bounce back immediately to keep the bullish possibilities alive. A break below 66 could make it vulnerable to a further fall towards 64.
Brent-WTI (9.83) spread has come off a bit. While the spread moves lower and falls from the crucial medium term resistance, it could indicate bearish Crude prices for the near term; the spread could come off towards 9-8 levels in the near term.
Gold (1235.70) attempted to rise above 1240 but came down to close at lower levels. An attempt to break above 1240 could be seen in the near term and if the price manages to move higher, 1250/60 would be seen in the next 1-2 weeks. Else, a fall back to 1210 is possible.
Copper (2.7620) continues to remain in the sideways consolidation and the narrow 2.70-2.83 region may continue to hold in the near term.
FOREX
Watch crucial resistance near 96.2-96.3 on the Dollar Index. A breach above this level could bring weakness in Euro, Pound and INR.
Euro (1.1463): Currently, the bias is slightly shifted to the downside with a re-test of support near 1.142-1.143 looking likely in the near term. On the upside, it has immediate intra-day resistance near 1.1475, which if broken could take it towards 1.1525. It would need to break above 1.1525-1.1550 for higher levels of 1.16-1.17 to come into play.
Dollar Index (95.99) – A further rise towards crucial resistance at 96.2-96.3 is possible in the next couple of sessions. A break above this resistance (if it happens) would be very bullish for the near to medium term.
Dollar Yen (112.48) – While below 112.5-112.6, Dollar Yen could dip more towards support at 112.2-112.0 in the next 1-2 sessions. If this support breaks, then there is lower support near 111.25 on daily candles.
Euro-Yen (128.95) could continue to fall towards 128.50-128.00 in the next couple of sessions while it remains below resistance near 129.1-129.2 on daily candles.
Pound (1.2979) : While below 1.30, it is likely to fall in the next couple of weeks to target support on weekly candles near 1.28. This week could see a gradual fall towards 1.295-1.290.
Aussie (0.7090) has risen after testing support near 0.7056 yesterday. There are chances of some ranging between 0.715 and 0.705 in the near term. Note that 0.705-0.704 is a crucial long term support level, which if broken, could be very bearish for the Aussie.
Dollar Rupee (73.57): Important resistance near 73.80 and 74 while above 73.20. If it breaks on the upside, it could be very bullish for USDINR. The next couple of sessions could see trade in the 73.20-73.80 region.
INTEREST RATES
The VIX (24.66) has moved up from levels near 11.61 in the beginning of the month and has seen highs near 28.84. If it continues to rise, we might see a rise in bond prices and consequently, a fall in yields globally.
Moreover, conflicts in Europe regarding Italy’s budget proposal also seems to be making investors nervous – thereby leading to a fall in German yields.
The US 10 Year (3.15%) has broken below the support near 3.17% which we had mentioned yesterday. It could now target support near 3.10%. If 3.10% also breaks, then the yield could even move down towards 3% in the next few weeks.
2 Year German-US Spread (-3.50%) : While below -3.46%, there are chances of a fall towards -3.60% in the near term.
German 10 year yield (0.41%) – As per expectation, the German 10 year yield is continuing its fall and could soon test support near 0.35%-0.30% in the next 1-2 weeks. A break of 0.30% (if it happens) would be very bearish. Watch out for the ECB meet tomorrow.
