STOCKS
Fear of the US-China trade war getting worse has increased after China stating that the talks cannot continue unless the US addresses its “wrong actions”. As a result the equities remain vulnerable for further fall on concerns that global economy could slow down. The global indices remain weak. It will have to be seen if the Sensex and Nifty can remain insulated and continue to move on the election results impact.
Dow (25490.47,-286.14,-1.11%) remains bearish to test 25000 while it remains below 26000. A break below 25250 will intensify the sell-off.
Inability to breach 12200 over the last few days signals the end of the uptrend and a possible trend reversal in DAX (11952.41,-216.33,-1.78%). A break below 11850 will comfirm the same and drag it to 11700-11600.
Nikkei (21024.74, -126.40, 0.60%) has declined towards 21000 as expected. An intermediate bounce to 21250 cannot be ruled out. But while it remains below 21500, the outlook remains bearish for it to break 21000 and fall to 20500.
Shanghai (2855.47, +2.96, 0.10%) is hovering above the lower end of its 2850-2950 range. The bias is negative for it to break 2850 and fall to 2800.
Sensex (38811.39, -298.82, -0.76%) and Nifty (11657.05, -80.85, -0.69%) have crucial supports at 38500 and 11600 respectively. While these supports hold, sensex can consolidate between 38500 and 39500 and Nifty can range between 11600 and 11900 before we see a fresh leg of rally.
COMMODITIES
A strong Sell-off in equities and a sharp pull-back in the US dollar index has pushed gold and silver higher. Both has room for further rise in the near term. Copper has bounced from a key support and can see a corrective rally before a fresh fall. Oil has tumbled on increasing concerns that the US-China trade war could impact the global economic growth and the demand for oil.
Contrary to our expectation for a fall to 1265, Gold (1282.4) has risen above 1280. While above the supports at 1280 and 1275, a rise to 1290-1292 is possible. Broadly we can look for gold to remain in the 1265-1300 range within its overall downtrend.
As expected Silver (14.55) rose to test 14.60. This corrective rise has room to test 14.75 before the overall downtrend resumes to target 14.2 and 14.0
Copper (2.68) has bounced in line with our expectation and can test 2.71-2.72. The downtrend is likely to resume thereafter towards the crucial support level of 2.60.
As expected the break below 70 has accelerated the fall in Brent (68.61). The bearish outlook is intact to test 66-64 now. Resistance in the 70-71 region can cap the upside.
WTI (58.61) can test 56-54 while it remains below 62.
FOREX
As Trump laid out another $16bln bailout for the American farmers, markets feared an increasing tension between US and China where no conclusion or end is visible to the conflict scenario. The Chinese commerce ministry spokesman Gao Feng said yesterday “If the United States wants to continue trade talks, they should show sincerity and correct their wrong actions. Negotiations can only continue on the basis of equality and mutual respect. We will closely monitor relevant developments and prepare necessary responses.”
Dollar trades weak boosting strength in Yen and some stability in Aussie and Pound. Euro has moved up while Euro-Yen is headed to re-test support. Rupee is weak but is likely to gain in the near term
Dollar Index (97.98) fell sharply from 98.37 yesterday to test 97.85 and is currently trading near the lower level. While above support at 97, there could be some chances of seeing 98.50 again in the near term. Overall trade region for the next week could be restricted to 98.50-97.00 region.
Euro (1.1181) fell to 1.1107 but bounced back sharply to trade near 1.1180 now. While above 1.11, Euro could rise back towards 1.1200/65 in the coming week.
Euro-Yen (122.54) could re-test trend support at 122 before bouncing towards 123-124 in the medium term.
Dollar Yen (109.62) has fallen below 110 again on fresh Dollar weakness. Sustained trade below 110 could slowly make the bulls weaker and keep the upside capped near 110.70 for now. While below 110, Dollar Yen could see fresh weakness towards 109.
Aussie (0.6885) is almost stable and has support on the 3-day candles as mentioned yesterday. 0.6850 is important level to watch just now; a break or bounce from 0.6850 would be the driver for the next week. Copper (2.6890) has risen slightly and while it bounces higher from support at 2.66, Aussie could also move higher over the next 2-3 sessions.
Pound (1.266) seems to have paused at 1.26 just now but there is some more room on the downside towards 1.25 before a fresh bounce is seen for the medium term. Watch price action near 1.26 just now.
USDCNY (6.9104) is stable just now. While above 6.90, the currency pair could move higher towards 6.95. Near term looks bullish.
USDINR (70.01) shot up in the second half of the trading session yesterday after the sweeping victory of the BJP-led NDA yesterday. After the favored victory of the current ruling party, the sudden upmove to 70+ was least expected although we had allowed for a test of 70.10 for the week.
On the upside USDINR could now be capped at 70.25 while USDINR is expected to fall back towards 69.80/50 reinforcing our preferred view of falling towards 69.25/00. The fall towards 69.80/50 could be seen in the next 1-3 sessions.
INTEREST RATES
The US yields have fallen sharply on fears of increase in US-China trade disputes and on weakness in dollar yesterday. The US 30Yr (2.76%), 10Yr (2.33%), 5Yr (2.13%) and 2Yr (2.16%) are sharply down about 4-5bps. the yields could continue to fall some more in the next few sessions by another 2-3bps before pausing. Near term looks weak for the yields.
The UK yields continue to fall and have some more room on the downside for the near term. The 5Yr (0.68%), 10Yr (0.95%) and 20Yr (1.43%) are sharply down and look bearish for the coming week towards 0.65%, 0.92% and 1.39% respectively.
The Japan yields are turning towards the downside and could fall in the near term indicating some weakness for Dollar-Yen also in the near term. The 10Yr Japan yield (-0.07%) could fall towards -0.085%.
