STOCKS
Major equities like the Dow, Dax and Nikkei remain weak.Shanghai continues to consolidate sideways. Sensex and Nifty can continue to outperfrome as they have gained momentum and remains bullish.
Dow (24819.78, +4.74, +0.02%) remains bearish to test 24500 and 24000. Strong resistance between 25100 and 25250 which can cap the upside of any intermediate bounce.
The support at 11620 (200-day moving average) has held well and DAX (11792.81, +65.97, +0.56%) has bounced as expected. Resistance at 11850 can be tested and is likely to cap the upside. A sideways consolidation between 11600 and 11850 can be seen for sometime before the overall downtrend resumes.
Nikkei (20296.35, -114.53, -0.56%) has dipped further and keeps our bearish view intact for a test of 20000 and 19500.
Shanghai (2868.04, -22.04, -0.76%) has dipped and is heading towards the lower end of its 2835-2950 sideways range as expected. A breakout on either side of 2835-2950 is needed to get a clear picture on the next trend.
Sensex (40267.62, +553.42, +1.39%) is bullish to test 40700. A break above the immediate resistance at 40400 can accelerate the rally to 40700.
Nifty (12088.55, +165.75, +1.39%) can test 12150-12200.
COMMODITIES
Gold has surged on increasing prospects of a rate cut from the Fed coupled with the high risk aversion in the market on the back of global slow-down fears. Copper remains bearish. The fall in oil may pay pause in the near-term and a consolidation/corrective rally looks likely before a fresh leg of downmove begins.
As expected, Gold (1325) has risen towards 1325 and remains positive to test 1345-1350 in the near term. The level of 1360 is a crucial resistance to watch.
Silver (14.76) is heading towards the key resistance level of 14.80 as expected. A break above 14.8 will see the corrective rally extending to 15 after which the downtrend can resume.
Copper (2.64) fell to 2.61 and has bounced from there. The outlook remains to test 2.60. Resistance is in the 2.66-2.67 region.
Brent (61.34) remains bearish to test 55. But an intermediate corrective rally/consolidation is possible after testing 59.74 (the 61.8% Fibonacci retracement support) before targeting 55.
WTI (53.25) has support at 51.72 (61.8% Fibonacci retracement support) which may pause the fall. A corrective rally to 54-55 is possible from there before WTI heads towards our preferred target level of 45.
FOREX
Probability that the FED would cut rate in July rose to 70% from earlier 47% on Friday. Dollar Index (97.18) has been falling sharply over the last 2-sessions and could fall to 96.75 in the near term. Failure to test 98.50 or higher increases chances of falling towards 96.50 in the medium term now. Overall trend is bearish for the week.
Euro (1.1249) shot up beyond our mentioned resistance near 1.1220. While the rising momentum remains strong, we could see a rise towards 1.1290 or even 1.1325 on the upside. Near term looks bullish ahead of the ECB meeting on 6th June where it is expected to keep the current policy unchanged. Markets expect a “wait-and-see” approach from Draghi as they prepare to launch another round of Targeted Long-Term Refinance Operations (TLTRO). The Governing Council also may take its own time to alter the forward-guidance for the monetary policy. While the medium term outlook for Euro remains bearish, we may allow for a rise towards 1.1290-1.1325 on the upside just now.
Euro-Yen (121.51) has risen from levels above 120.50 and while the bounce sustains, we could see a rise towards 122 in the near term.
Dollar-Yen (107.98) could get some support near 107.50-107.00 region in the near term from where a bounce back could be expected. View is bearish for the near term while below 109.
Aussie (0.6972) is rising towards 0.70, which is an interim resistance. If 0.70 holds, Aussie could fall from there back towards 0.69. Else, a rise past 0.70 would take it to the upper resistance near 0.71. Overall near to medium term trend look sideways to bullish.
Pound (1.2667) could be expected to rise towards 1.2700-1.2750 while it trades above 1.2650 in the near term. A corrective bounce could be in place just now within an overall downtrend.
USDCNY (6.9049) is almost stable. It could possibly remain sideways within 6.92-6.88 region for a few sessions.
USDINR (69.2650) is likely to see a gap down opening today also testing support at 69 on sharp rise in Euro. While Euro continues to rise towards our expected 1.1290, Rupee could see strength. Also rising Nifty (refer equities section above) and lower Crude prices are in favor of Rupee strength for the remaining sessions of the week. A fall below 69, if seen could accelerate the fall in the near term turning bearish for the next 1-2 weeks.
INTEREST RATES
The US ISM manufacturing index fell to 52.1 for May’19, lower than the market expectation of 53. Slight upmove seen in the yields. The 2YR (1.87%) is up 1bps while the 5Yr (1.87%) and 10YR (2.10%) are up by 2bops. According to the CME Group data, the markets now see 80% chances of two rate cuts in 2019 and 96% chances of seeing one rate cut in the year. There is room on the downside for the US yields to fall in the medium term.
The US-Japan 10YR (2.20%) has fallen by 2bps and could pause above 2.1% from where a bounce is expected.
The sharp rise in the German-US 10Yr (-2.30%) and in the German-US 2Yr (-2.52%) has been indicating a rise in Euro but the broad negative correlation has turned positive now that the Euro has been pulled up sharply from levels above 1.11 in the last few sessions. The spreads look bullish in the near term.
The German yields are almost stable. Could see a bounce in the near term. The 10YR (-0.199%) could rise towards -0.15% in the near term.
