STOCKS
Equities are turning weak as the fear of corona virus spreading outside China has increased and is weighing on the markets. Dow has declined below 29000 and has room to fall further before reversing higher again. DAX has failed to breach a crucial resistance last week and can see a corrective fall now. Sensex and Nifty also look vulnerable for a fall this week as they seem to lack momentum to break above their key resistances. Shanghai continues to remain strong. But it can consolidate or see a mild correction in the near-term before resuming its uptrend. Nikkei is closed today on account of a public holiday
Dow (28992.41, −227.57, -0.78%) has declined below 29000. The rise to 29750-30000 that we had been expecting seems to be not happening now. Inability to bounce above 29000 from current levels can drag the index lower to 28700-28650 this week. Thereafter a strong bounce is needed to keep the possibilities alive of seeing 29750-30000 on the upside.
Several attempts made all through-last week to breach 13800 has failed and DAX (13579.33, −84.67, -0.62%) has come-off to close below the intermediate support level of 13600. While below 13800, the short-term outlook is now bearish to see a fall to 13400 and13200.
As expected, Shanghai (3013.13, −26.54, -0.87%) broke above 3000 to test 3050 last week. It has come-off now from Friday’s high of 3058.9 . The index can consolidate between 3000 and 3050 for some time. The downside is likely to be limited to 2980 or 2950 even if a break below 3000 is seen. The bias continues to remain bullish to test 3100 on the upside.
Sensex (41170.12, -152.88, -0.37%) is facing resistance at 41400 and remains vulnerable to test 40500 and 40200 on the downside in the coming days. A break below 41000 can trigger this fall and will also negate the chances of seeing 41800 on upside which we had mentioned on Thursday last week.
The resistance at 12140 mentioned last week is holding well on the Nifty (12080.85, -45.05, -0.37%) for now. While below this resistance a fall to 11900-11800 is more likely to be seen in the coming days. Nifty has to breach 12200 in order to negate the chances of the above mentioned fall.
Nikkei (23386.74) is closed today.
COMMODITIES
Gold rise higher and crude dips as the coronavirus outbreak seems to be spreading to neighboring countries as Iran and Italy reports cases of infections. Other countries like Turkey, Pakistan, Armenia, Iraq have closed their borders and have restricted travels. Silver also looks bullish while it sustains above current levels.
Gold (1665.50) has moved up sharply rising above our expected resistance near 1640. While the price sustains above 1640, there is further scope for a test of 1700-1800 on the upside in the medium term. Watch for a sustained trade above 1640 to keep the bullish momentum intact. Only a dip back from current levels to below 1640 would delay or negate further bullishness going forward.
Silver (18.68) has just broken above resistance near 18.66 and that needs to sustain to see a further rise towards 19.0-19.5 in the near term. Our mentioned rise towards 18.70 is holding well.
Copper (2.5715) is holding well below resistance near 2.65 and a break below 2.60 has resolved the directional uncertainty mentioned in our previous edition on Friday. Decent support below current levels are seen near 2.55 and lower at 2.50 which are likely to hold in the near term.
Brent (56.91) and Nymex WTI (51.99) have dipped yet again as the coronavirus spread once again hit the headlines, resurfacing its impact on demand growth. Medium term targets of 60-62 and 56-58 remains intact but failure to see immediate rise above 58 and 53.50 could keep crude prices lower for sometime.
FOREX
Dollar strength continues as the index is headed towards 99.60-100. A reversal from there is expected in the near term which could keep Euro above 1.0750 and eventually take it higher. Dollar Yen can test 112 on the upside and is moving in line with a stronger Dollar Index. USDCNY trades below important near term resistance and needs to sustain trade below that to deny a possible rise in the medium term. USDINR could open higher and move up from current levels.
US Dollar Index (99.55) continues to trade higher and could test 99.60-100 in the near term before coming off from there. View is bullish for the near term.
Euro (1.0822) is holding above 1.08 but has limited room for a fall from here to 1.0750 while Dollar Index is expected to come off from 100 levels.
Dollar-Yen (111.57) has reacted to the sharp rise in Gold contrary to the usual directionally inverse correlation. This development is surprising and while that continues, we may expect a test of 112 on the upside in the next few sessions from where a dip looks likely.
EURJPY (120.72) has risen sharply to rise above 120 instead of falling further towards our expected 117. But we would be cautious for a sharp rise from here above 121.20 which could be less likely.
Aussie (0.6604) could get some support at current levels. A sustained break below 0.66 is needed to expect further bearishness possibly towards 0.64.
Pound (1.2938) is bearish while below 1.30. Upside is likely to be limited to 1.31.
USDCNY (7.03) has moved up on concerns over spread of virus that continues to reach to neighboring countries too. Unless a fall from 7.04 is seen, we may possibly see a sharper rise in USDCNY taking it higher towards 7.06/07 in the medium term.
USDINR (71.65) closed higher on Thursday and is likely to open higher today with a possible test of 71.80/90 on the upside with a potential of heading towards 72.00-72.20 in the medium term. Overall view is bullish above 71.50.
INTEREST RATES
Increasing fear of the corona virus spreading widely outside China and a global slow down on the back of it are keeping the market sentiment highly risk averse. As a result, the US Treasury yields have declined sharply across tenors on Friday. Our bearish view is intact. They have room to fall further to test their crucial supports in the coming days. The German yields are also moving down in line with our expectation and remain bearish. The 10Yr GoI has bounced above 6.40% and can see a relief rally this week before resuming its downtrend.
The US 2Yr (1.35%), 5Yr (1.32%), 10Yr (1.47%) and 30Yr (1.91%) Treasury yields have tumbled across tenors The bearish view is intact. As expected the 30Yr has come down to test 1.90% and the 10Yr is heading towards 1.45%. The 2Yr and 5Yr have crucial supports near 1.25% which will need a close watch this week. The 10Yr has room to fall towards 1.30%-1.28% on a break below 1.45%. The 30Yr can test 1.80%-1.75% on the downside in the coming weeks while it sustains below 2%. Resistances are at 1.50% (10Yr) and 2% (30Yr).
The German 2Yr (-0.66%), 5Yr (-0.62%), 10Yr (-0.43%) and 30Yr (0.04%) yields have come down further in line with our expectation. The bearish outlook is intact. As we had mentioned last week, the 10Yr can test -0.45% and -0.50% in the coming days while it remains below -0.40%. The 30Yr can fall to 0.03% and 0% in the near-term and the chances of it moving into negative territory will have to be seen. A break below 0% can drag the 30Yr even lower to -0.1% eventually.
The 10Yr GoI (6.4247%) has risen-back and closed above 6.40% last week thereby reducing the danger of seeing 6.30%-6.28% immediately. While above 6.40% a test of 6.45% is possible this week. A break above 6.45% will see the corrective rally extending to 6.50% which in turn will further delay the preferred fall to 6.30%-6.28%.
