STOCKS
Tensions after the strike on Iran by the US last week and the fear of further escalation are weighing on the markets. As a result, the Dow and DAX fell on Friday and have important supports coming up which needs to hold in order to avoid further deep fall. Nikkei has declined sharply and can fall further while Shanghai is managing to stay afloat for now. Shanghai has a crucial resistance ahead which has to be broken to move further higher. India’s Sensex and Nifty which have been stuck in a narrow range could be in danger of breaking this range on the downside following the sell-off in the global markets. We will have to wait and see.
Dow (28634.88, -233.92, -0.81%) has an important support at 28500 which has to hold in order to keep the chances alive of testing the 29000-29050 region. We expect the upside to be capped at 29050 and the Dow is likely to see a corrective fall from there targeting 28000 and 27650 in the coming weeks. A break below 28500 can trigger this fall just now without seeing a rise to test the above mentioned resistances.
DAX (13385.93, +136.92, +1.03) has been consolidating within its uptrend. 13000-13425 is the range that it has been trading. A dip to 13100-13000 is possible in the near-term while the index remains below 13400. However, the bias on the chart continues to remain bullish while above 13000. If DAX manages to hold above 13000 and breaches 13425, a fresh rally to 13600 is possible.
Nikkei (23172.16, -484.46, -2.05%) has opened with a wide gap-down after a long year-end holidays. It can test 23000 and whether the index manages to hold above this psychological support or not will be key in determining the next move. A strong break below 23000 will see the fall extending to 22700-22500 in the coming days.
Shanghai (3092.40, +8.62, +0.28%) is at a crucial resistance level of 3100-3125. A strong rise past 3125 will be bullish to see 3300-3400 and even higher levels in the coming months. But, while the 3100-3125 resistance zone holds, a dip to 3040-3035 is possible in the near term. We will have to wait and watch.
Nifty (12226.65, -55.55, -0.45%) has been stuck in a narrow range of 12100-12300. It has to sustain above 12100 in order to keep the chances alive of seeing 12350-12380 (revised higher from 12370) on the upside. But, if a Nifty break below 12100 from current levels itself, the outlook will turn negative to see 11900-11800 again on the downside. We will have to wait and watch the movement closely.
Sensex (41464.61, -162.03, -0.39%) on the other hand will come under pressure if it declines below 41000 in which case a fall to 40000 is possible. However, if Sensex manages to sustain above 41000, it can to test 42200 or even 42400 – the two major resistances in the short-term and then can reverse lower.
COMMODITIES
US-Iran tensions added further to the already rising crude prices taking them much higher than what we had expected. Near term looks bullish now towards respective upper resistance levels. Gold and Silver have also moved up sharply beyond our expected levels and could rally higher towards upper target levels. Only Copper has come down amongst the other rising commodities. Overall bulls seem strong for the commodities and may continue to remain so for the week.
Brent (70.20) and Nymex WTI (64.30) have both risen sharply. Above 70 and 64 respectively the crude prices look bullish for a rise towards 75 and 67 respectively in the near term before any sharp corrective dip is seen.
Gold (1579.10) has risen above our expected 1565 levels and seems to be strongly under bull influence as Dollar Index weakens against major currencies. Silver (18.49) however has come up to our mentioned levels of 18.50. While the bulls continue to hold, Gold could attempt a rise towards 1600 and Silver could test 19 on the upside on a break above 18.50.
Copper (2.7895) has dipped a bit but could find some support near 2.75-2.70 levels in the near term from where a bounce could be expected.
FOREX
While trade deal between US and China gives some light of hope, fresh tensions between Iran and US emerge to bring in more volatility into the markets. A retaliatory step from Iran could keep high volatility intact for the rest of the month.
Dollar Index (96.82) is stable but is tilted towards bearish side with a possible fall towards 96 in the near term. If not a sharp fall, we may see some ranged movement in the 96-97 region just now.
Euro (1.1167) may remain below 1.1239 for the next few sessions. High volatility could be expected in the next 1-2 weeks.
Dollar-Yen (108.02) is trading at support levels of 108 after having tested 107.77 on Friday. It would be important to see if USDJPY remains above 108 ass that could lead to some sideways movement eventually leading to a rise towards 108.50 and higher in the medium term. Sustained break below 108 could be bearish.
EURJPY (120.65) has important support near 120 and while that holds, the pair could rise back towards 121.50 in the near term.
Pound (1.3087) tested 1.3284 last week before coming off sharply from there. It has immediate support near 1.30 and lower near 1.2950 which may hold just now keeping the Pound ranged or take it higher towards 1.32 again.
Aussie (0.6947) is currently within a downward corrective move that may find some support near 0.69. Only if the currency breaks below 0.69, we may have to look at fresh bears coming into the picture that could turn bearish for Aussie in the medium to long term.
USDCNY (6.9711) is stable as the news headlines now drifts away from China. The pair is likely to trade above 6.95/96 in the near term.
Dollar-Rupee (71.8050) closed higher on Friday and could test resistance near 72 on the upside. Near term looks bullish.
INTEREST RATES
Risk aversion in the market following the tensions after the US air strike killed Iran’s top military leader has dragged the US Treasury yields sharply lower on Friday. The yields are likely to move further lower. The German yields have also come down sharply and have room to dip further. This could delay the rise in German yields that we have been mentioning last week. The 10Yr GoI has strong support the 6.50%-6.45% region which is likely to limit the downside and produce a bounce in the coming days.
The US 2Yr (1.51%), 5Yr (1.77%), 10Yr (1.77%) and 30Yr (2.23%) Treasury yields have tumbled across tenors. The 10Yr has room on the downside to test 1.70%-1.67% while the 30Yr has an immediate support coming up at 2.20%. A break below 2.20% can drag the 30Yr further lower to 2.13% this week.
The German 2Yr (-0.64%), 5Yr (-0.56%), 10Yr (-0.29%) and 30Yr (0.24%) yields have declined sharply across tenors on Friday. The 10Yr has declined below its support at -0.23% as against our expectation and is now vulnerable to test -0.35% and even -0.40%. The 30Yr on the other hand can fall to 0.15% and then can bounce-back from thereby keeping the overall uptrend intact.
The 10Yr GoI (6.5148%) has bounced from the low of 6.4846% on Friday. We expect the 6.50%-6.45% support zone to hold well and limit the downside. The broader picture remains bullish and we expect the 10Yr GoI to see a rise to 6.60% and even higher levels in the coming weeks. A break above 6.55% will trigger this rally.
