STOCKS
Equities have recovered. Trump’s comment yesterday saying that China has called the US and would want to make a deal gave a breather to the markets which had seen a sharp sell-off on Friday evening and early morning Monday. Broadly, indices like the Dow, Nikkei may run into a sideways consolidation for some time. Shanghai has broken above a key resistance and can rise further. Sensex and Nifty has risen sharply from the day’s low yesterday and can move further higher in the near term.
Dow (25898.83, +269.93, +1.05% ) has bounced and can consolidate between 25500 and 26500. Only a strong break above 26500 will turn the sentiment positive. While below 26500, we expect the Dow to test 25000-24900 on the downside
DAX (11658.04, +46.53, +0.40%) will need a close watch to see if it can sustain above 11550 and bounce to 11800-850 from current levels. Such a move will signal an inverted head and shoulder pattern on the daily chart. A strong rise past 11850 will then confirm this pattern. A strong break below 11550 will be bearish on the other hand to test 11400 and even lower levels.
Shanghai (2915.45, +51.88, +1.81%) can rise to 2950 if it can sustain above 2900. A strong rise past 2950 will turn the outlook bullish to test 3000 and will wipe out the chances of any further fall. Support is at 2885.
Nikkei (20509.33, +248.29, +1.23%) can consolidate between 20100 and 20800 with a bearish bias to test 20000 and 19900 on the downside.
Contrary to our expectation, Sensex (37494.12, +792.96, +2.16%) is holding well above 36500. It can test 37750, a strong break above which will increase the chances of the index breaking above 38000 and rising to 38500.
Nifty (11057.85, +228.50, +2.11%) has bounced sharply from its low of 10756.55 and has closed above 11000. While above 11000, the fall to 11600 we had mentioned yesterday gets negated and a rise to 11145 and 11200 is possible in the near term. It will have to be seen if the Nifty can surpass 11200 decisively or not.
COMMODITIES
Recovery in the US dollar and equities has dragged gold sharply lower while silver manages to sustain higher. Gold has a key support near current levels which if broken can take the prices further lower. The resistance on oil is holding very well as expected and keeps the near-term bearish view intact. Copper has to sustain the bounce seen yesterday in order to avoid further fall.
Gold (1528) has come-off sharply from the high of 1555 and is trading in the 1530-1525 support zone. A break below 1525 can take the prices further lower to 1515 and 1500 in the near-term and will reduce the chances of seeing 1580-1590 on the upside that we had mentioned yesterday.
But, silver (17.66), though has dipped, is managing to hold higher. While above 17.5 the bullish view is intact to test 18-18.10 in the near term. A break below 17.5 will take silver lower to 17.25 and will delay the above mentioned rise.
Copper (2.54) has bounced sharply from the low of 2.49. It has to be seen if it can sustain above 2.52 or not. While above 2.52, a rise to 2.57 is possible in the near term and will reduce the chances of further fall.
The resistance at 60 on Brent (58.87) is holding well as expected and keeps the bearish view intact. As mentioned yesterday, 57.9 is a crucial support and a break below it will see Brent falling to 57 and 56 in the coming days.
Similarly, WTI (53.77) looks vulnerable to break its support at 53 and fall to 52 and 51.5 in the coming days.
FOREX
Dollar has recovered after Trump said that the US and China will resume their trade talks. Broadly the currencies look mixed and may consolidate or remain stable for a few sessions before we get a clear trend. The Euro can dip in the near term. The Dollar-Yen and Aussie have key resistances ahead which needs to be broken in order sustain the bounce-back move and to ease the downside pressure. USDCNY remains bullish and is moving up towards in line with our expectation. USDINR can move higher while it sustains above the 71.80-71.75 support zone.
Dollar Index (98.05) has bounced but will have a key intraday resistance at 98.15 which has to be broken in order to move further higher to 98.5. While below 98.15, a fall to 97.7 and 97.5 again is possible.
Euro (1.1099) has dipped below its support at 1.1115 which we had expected to hold. As long as the Euro trades below 1.1115, a revisit of 1.1065-1.1050 levels is possible again. A break below 1.1050 will then bring back the chances of seeing 1.1030-1.10 on the downside again.
Dollar-Yen (106.10) has bounced sharply from the crucial support level of 104.5 but has to be seen if it can sustain it. Key resistances are at 106.5 and 106.7 which have to be breached to negate a fall to 105.5 and 105 again.
EUR-JPY (117.70) has come-off from the high of 118.20 and can fall to 117 and 116.5 again on a break below 117.5. The cross remains weak and keeps the possibilities alive of testing 116 on the downside.
Aussie (0.6775) has bounced sharply back into its 0.6735-0.6835 range. It will have to sutain above 0.6750 to move further higher to 0.6800 and 0.6835 again. A break below 0.6750 will increase the chances of the pair falling again to 0.6725 and 0.6700. It will also retain the bearish view of seeing 0.66 and -0.65 on the downside.
Pound (1.2268) continues to oscillate between 1.22 and 1.23. As mentioned yesterday, it has a key resistance at 1.2315 which has to be broken for it to move further higher towards 1.24. A break below 1.22 on the other hand can take the pair lower to 1.2160.
USDCNY (7.1553) has risen further in line with our expectation and can test 7.17 on the upside in the coming days.
USDINR (72.0250) has strong support in the 71.80-71.75 region while above which the outlook is bullish to see 72.25 and 72.50 on the upside. Only a strong break below 71.75 will turn the outlook negative to test 71.50 on the downside.
INTEREST RATES
Yields got a breather as the tensions on the US-China trade war front eased after Trump said that the talks with China will continue. The US Treasury yields and the German yields can consolidate in the near-term within their overall downtrend. The 10Yr GoI can dip to test the crucial support level of 6.45%.
The US 2Yr (1.53%) and the 30Yr (2.03%) were stable while the 5Yr (1.40%) and 10Yr (1.52%) were down 2 bps each. The 30Yr can oscillate between 2% and 2.10% before breaking decisively below 2% and target 1.8% on the downside. Similarly, the 5Yr can remain range bound between 1.4% and 1.5% before falling to 1.3% in the coming days.
The German yields were mixed yesterday. The 2Yr (-0.91%) dipped 2 bps while the 5Yr (-0.88%) and 10Yr (-0.67%) remained stable. The 30Yr (-0.14%) on the other hand was up 2 bps. Yields may stay stable and consolidate in the near-term. However, the broader bearish view is intact. The 5Yr can test -1% and the 10Yr can fall to -0.80% and even -0.90% in the short term.
The 10Yr GoI (6.4798%) broke below 6.53% and has dipped towards 6.48% as mentioned yesterday. While below 6.50%, it has room to test 6.45% which is a crucial level to watch on the downside.
