STOCKS
The Bulls are on the rope, maybe even on the mat, in most Equity markets. India has beeen a very good outperformer, but needs a solid recovery in global markets in order to push higher.
Will the FOMC tonight cause the Dow (23675.64, +82.66, +0.35%) break below the super-crucial Support at 23500? We are unable to assess how Short the market is, going into the FOMC. On the charts, 23500 is the “Last of the Mohicans” Support. If it breaks, we would have to give up on the bullish possibility. Let us see.
The Nikkei (21105) is trading below 21200, the support mentioned yesterday, and is beginning to look bearish towards 20000, unless it manages to rise past 21200 soon. But, with Dollar-Yen (112.40) looking potentially bearish, recovery in the Nikkei might be an uphill task.
The Shanghai (2571.30, -0.17%) is bearish, as expected, as it has been unable to break above 2650 and is now trading below 2600. A near-term test of 2550-25 seems likely. Follow-through selling from there (if seen, chances 60-40) could open up 2500-2450 etc.
Economic data from Germany yesterday (IFO) and Europe on Monday (CPI) has been soft, suggesting growth/ recovery could be topping out. The DAX (10740.89, -31.31, -0.29%) looks bearish, as expected towards 10500-400.
India has done spectacularly over the last few days, rising in a bearish global environment. But, the Nifty (10908.70, +20.35, +0.19%) has a super-crucial Resistance at 10925, the 21-week Moving Average. If the global environment does not improve after the FOMC today, there could be a danger of the Nifty succumbing to bearishness as well.
COMMODITIES
Commodities are all mixed. While the crude prices trade lower, Gold and silver are stable with resistances above current levels. Copper has fallen sharply and indicates bearishness for the near term. Overall medium term trend for the commodities look weak.
Brent (56.44) and Nymex WTI (46.62) fell sharply breaking below our mentioned supports at 56.50 and 48 respectively. While the crude prices trade lower, we may now look for a fall towards 54-52 on Brent. WTI has support at 46 on the weekly candle chart which if holds could produce a bounce else could lead to a fall towards 44-42 on the downside.
Brent-WTI spread (9.82) is near resistance at 10 and while that holds, the spread could come off towards 9.0-8.5 levels in the coming sessions.
Gold (1254.40) is headed towards 1260-1265 in the near term and looks bullish just now while Silver (14.74) could trade in the 14.50-15.00 region for some time. While Silver trades below 15, medium term is bearish. An expected fall in Silver could probably indicate bearishness in Gold going forward from levels near 1265.
Copper (2.6785) is down sharply and could test 2.64-2.60 on the downside while below 2.70. the overall broad 2.90-2.60 range is intact just now. Need to see if price drops below 2.60 in the coming sessions.
FOREX
Currency pairs are all mixed. Pound and Aussie look bullish for the near term while Euro and Dollar Yen could fall. Strength in Rupee towards 70 looks possible today.
Dollar index (96.86) has support near 96.75 which if holds, could push the index back to higher levels of 97.50.
Euro (1.1386) is rising for the past couple of sessions but could face some restriction near 1.1450. FOMC today would be important and a possible fall in Euro is possible from levels near 1.14-1.1450 if tested during the day.
Dollar Yen (112.38) has broken below support at 112.5 and while it moves lower, a fall to 111.5 could be seen in the near term. View is bearish.
Euro-Yen (127.87) has fallen below our mentioned support at 128. While below 128, the pair could test 126 on the downside before reversing from there. Near term is bearish while below 128. If the FOMC triggers a rise in Dollar Index today, Euro could be pulled down as the Euro-Yen indicates further fall from here.
Pound (1.2670) has broken above the immediate channel resistance on the daily candles but has upper resistance at 1.28 on the 3-day and weekly charts. Near term is bullish towards 1.28 while the long term downtrend remains intact.
Aussie (0.7192) has risen slightly. While support at 0.7150 holds, near term could be stable to bullish towards 0.725.
Dollar Rupee (70.44) is likely to test 70.20-70.00 on the downside on weakness in crude prices overnight. Note that 70 is a crucial support coming from Jan’18 and could produce a decent bounce once tested. We do not look at a fall below 70 just now.
INTEREST RATES
Will the Fed listen to the market and relent on its “dot plot” for 2019? Will it recognise the sharp decline in Crude prices? If it does, we would hope to see the Near-end of the Curve drop while the Far-end might remain stable, or even rise. In effect, the Curve might steepen.
On the charts, the 30Yr (3.06%) and 10Yr (2.81%) are trading just below long-term support trendlines coming up from the July 2016 lows. This means they have already fallen a lot. On the other hand, the 2Yr (2.65%) and 5Yr (2.65%) have comparitivley much more room to fall on the downside. So, if the FOMC relents tonight, maybe it is the Near-end that will react more and fall more. Let us see.
As mentioned in the Equity section, economic data from Germany yesterday (IFO) and Europe on Monday (CPI) has been soft, suggesting growth/ recovery could be topping out. However, the German 5Yr (-0.30%) and German 2Yr (-0.61%) may have Support near current levels. At the same time, the 10Yr (0.24%) and 30Yr (0.85%) are falling. So, there is Curve flattening happening in Germany.
The German-US 2Yr Spread (-3.26%) has been rising well since -3.55% in mid-Nov, but might have near-term Resistance at -3.25% now. But the rally since -3.55% can continue in the longer term, while above -3.35%.
In India, the RBI is to infuse liquidity of Rs 50,000 Cr in January. The 10Yr GOI (7.3452%) may dip a bit more to 7.25%, but might move up from there, given good Support near 4.49% on Indo-US 10yr Spread, compared to the current level of 4.53%.
