STOCKS
The Dow (yesterday) and Asians (today) have recovered a bit due to the FOMC fillip, but not yet become clearly bullish. Nor are they clearly bearish now. Maybe we have to live with indecision for a few days.
Solid rise in the Dow (25014.86, +434.90, +1.77%) yesterday after Powell said he will be “patient” with rate hikes. The Dow has closed just above 25000, the crucial resistance we were looking at. If the rally sustains today, then it may prove our earlier bearishness towards 24000 to be incorrect.
Surprisingly, the DAX (11181.66, -37.17, -0.33%) did not move up yesterday, despite us being ready to consider a rally and the Dow rallying well. It is still jammed in a “could go either way” place on the 3-day Candles, with equal chances of a dip to 10900 as of a further rally to 11500.
Contrary to our near-term bearishness, the Nikkei (20714) is trading higher today after dipping to 10557 yesterday. Unable to figure out direction now it seems. Resistance available in the 20800-21000 region; Support in the 20500-400 region. Maybe we just need to stand back and see how the price behaves around these over the next few days.
The Shanghai (2584) could be rallying from the 2550 Support (low of 2559 was seen on Wednesday), but needs to rise past 2600-2660 to acquire bullishness.
Also, the Sensex (35591.25, -1.25, 0.00%) and Nifty (10651.80, -0.40, 0.00%) did not see follow-through sales yesterday, despite breaking below Supports the day before. Maybe they will move up a bit along with the other markets today? As with the others, will need to see if the rally sustains or not.
COMMODITIES
Precious metals have risen and looks bullish for the near term. Copper is bullish while above 2.75. Crude may also see some rise in the next few sessions.
Sharp rise seen in Gold (1323.40) and Silver (16.04). The FED signaled an end to the interest rate hike cycle. The FED, post yesterday’s meeting seemed to reverse the communication made in the Dec’18 meet where 2 more rate hikes were expected in 2019. The dovish comments might have triggered a rise in the previous metals. While the rise continues, Gold could see a rise towards 1330-1350 on the upside while Silver could test 16.55 before starting to come off from there.
Crude prices are trading higher. Crude rose after the EIA weekly report showed a less than expected rise in the US stockpiles. This is mainly because of decrease in imports especially from Saudi Arabia. Crude inventories rose 919000 barrels against an expectation of 3.2 mln barrels for the week ended 25th Jan.
Brent (62.05) and WTI (54.59) have risen. Although Brent has broken above the trend resistance near 62, we would turn bullish for the near term only on a break above 65 (near term horizontal resistance). On WTI, while the break above 54.50 holds, it could enable a rise towards 58 in the near term. On the daily line chart, WTI has 13-day Ma and 21-Ma as supports near 52 and if that holds well, it could be an indication of a bullish signal. We need to watch for a break above 65 on Brent while WTI may head towards 56-58 levels.
Copper (2.7755) has risen sharply breaking above 2.75.This if sustains, is a crucial bullish signal for the medium term towards 3. For now, while above 2.75, we may look for a rise towards 2.80-85. Immediate view is bullish while above 2.75.
FOREX
The FED kept interest rates unchanged. Dovish comments post the meet has lead to a fall in the Dollar Index. Most currencies are trading strong against the Dollar but we need to see if this is temporary or the current move sustains for the medium term.
Dollar Index (95.25) has come off as expected and could test 95 on the downside. 95.0-94.75 is a decent support on the 3-day and weekly charts and is likely to hold in the medium term. Over today and tomorrow Dollar Index could trade weak.
Euro (1.1503) has risen sharply in line with our expectation. A rise towards 1.16-1.1650 could be on the cards if the current upward momentum stays intact. Daily candle show trend resistance at 1.16 while 1.15 is also a decent resistance. A break above 1.1650 is needed to look at fresh bullishness for the Euro. For now we expect 1.15-1.1650 resistance zone to hold.
Dollar Yen (108.81) is heading towards 108 as expected and a test of 108 in the next couple of sessions could negate a rise back to levels above 110 in the near term. A test of 108 is possible followed by a bounce thereafter.
Pound (1.3135) is likely to trade sideways in the 1.32-1.30 region for the next few sessions.
Aussie (0.7267) has moved up sharply on strength in the commodities especially Copper. Immediate trend resistance is seen near 0.73 which if breaks on the upside could turn bullish for the medium term towards 0.74 and higher. Watch price movement near 0.73.
USD-CNY (6.7044) could test 6.65 on the downside before pausing within the current downmove. Immediate support is seen at 6.65.
Dollar Rupee (71.12) came off after opening near 71.36 yesterday. While upside resistance zone of 71.40/60 holds, we could possibly see a test of 71.0-70.9 levels again. At the same time rise in Brent could keep Dollar-Rupee higher. Overall the broad 70.90-71.40/60 region is likely to hold in the near term.
INTEREST RATES
The FOMC said it will be patient about raising rates. Music to the ears of the bond market. Yields fell across the Curve. Good dip in the US 2Yr (2.51%, down from 2.58%) and 5Yr (2.49%, down from 2.56%), both down a good 7bp.
The US 10yr (2.68%, down from 2.73%) and 30Yr (3.03%, down from 3.05%) also fell, but by 5bp and 2bp respectively, much less than the 7bp dip on the 2yr. As a result, the 10-2 Spread (0.17%) and the 30-2 Spread (0.52%) have actually moved up from 0.15% and 0.47% earlier, steepening the Curve in the process. Same with the 10-5 and 30-5 Spreads as well. This might be good news for the Equity markets.
As mentioned yesterday, we see chances of further dip in yields towards 2.50% (2Yr); 2.45% (5Yr); 2.60% (10Yr) and 2.85% (30yr).
The German-US 2Yr Spread (-3.07%) and German-US 10Yr Spread (-2.49%) have both shot up over the last two days, from 3.19% and -2.56% respectively, giving a boost to the Euro (1.1503).
Let us see whether the Fed’s new found dovishness will find an echo with the RBI on 7th Feb. Before that the Budget (only a Vote on Account) is to be presented tomorrow. The 10Yr GOI (7.5515%) is holding above 7.50/48% but below 7.59% and could probably range in the 7.60-7.50% region for a few more days.
