STOCKS
The price action over the last couple of days in the major indices is showing a slight sign of relief. Dow is managing to hold above 19000 and DAX sustains above the 8400-8200 support zone. Sensex, Nifty and Shanghai have also bounced-back after an initial break below their crucial supports. While these are giving some initial sign of relief, we will have to wait and watch for a few more days to see if this sustains as tomorrow is not just another day in financial markets especially at times of high uncertainty like now.
Dow (20087.19, +188.27, +0.95%) is managing to hold above 19000 over the last couple of days. While a test of 18500-18000 is still there, we need to see if the index sustains above 19000 for few more days and see one leg of corrective bounce before testing 18000 on the downside. As we had mentioned yesterday, 18000 is a strong support and while it holds, a bounce to 21000 cannot be ruled out.
The 8400-8200 support zone continues to hold well on the DAX (8610.43, +168.72, +2%) but it still lacks strength to stage a strong bounce. As mentioned yesterday, DAX has to sustain above 8200 to avoid a further fall to 7000. While above 8200 a bounce to 9000-9200 can be seen in the near-term. However, as we had mentioned earlier, a strong rise past 9200 is very much needed to ease the downside pressure and take the index further higher to 9800-10000 levels again.
Nikkei (16552.83, −173.72, -1.04%) is closed today.
Shanghai (2726.38, +24.25, +0.90%) has bounced-back above 2700 thereby easing the danger of seeing 2600 on the downside that we had mentioned yesterday. However it will have to be seen if it can sustain above 2700 which is needed to completely negate the chances of seeing 2600 on the downside. While above 2700, a rise to 2750-2775 can be seen in the near-term.
As expected,Sensex (28288.23, −581.28, -2.01%) has bounced after testing 27000 yesterday. 26714 was the low made yesterday. While above 27000, a corrective rally to 31000 looks possible. It will also avoid the danger of seeing further lower levels. We will have to wait and watch.
Nifty (8263.45, -205.35, -2.42%) has bounced back from the low of 7832.55 yesterday. The price action over the next few days will need a close watch to see if it sustains above 8000 or not. Our preference is to see the Nifty sustaining above 8000 and see a corrective rally to 9500-9700 going forward. In case of a strong break below 8000, we may have to allow for a test of 7500 or even lower levels.
COMMODITIES
Some relief on the commodities as they rise from lower levels seen yesterday but this will have to sustain to bring them higher in the near term. While the impact of COVID19 on global economy has been felt and well priced in, we may possibly not expect any sharper fall from current levels. We would be watching crucial supports closely to see if another round of fall takes place in the near term or prices rise collectively going forward. Rise in commodity prices is expected at least for the next few sessions of early next week.
Brent (28.52) and Nymex WTI (26.51) have risen from lows seen yesterday. We would continue to watch support on Brent at $23 and on WTI at $20 for the near term but while above $25 on WTI and $30 on Brent we may expect a rise in the coming week.
Gold (1485.60) remains stable above support at 1450. Some consolidation above 1450 could be expected in the near term. Only a break above 1550 would negate further bearishness on Gold.
Silver (12.39) has bounced back above $12 but we would keep a close watch to see if it is a short corrective upmove or whether the rise will sustain in the coming week. While above $12 we are fairly bullish on Silver.
Copper (2.1540) has recovered from 1.97 seen yesterday as our mentioned support near 2 has held. We may expect a bounce back towards 2.35 or higher in the near term.
FOREX
Some corrective movement seen in currency pairs so far. Pound and Aussie have risen slightly from yesterday’s lows. Dollar Index has come down a bit. Yuan, Yen and Rupee look weak. Overall volatility is likely to remain for another week but we may expect some corrective movements in the next few sessions.
Asian Dollar Index (ADXY, 100.95) continues to trade below 102. An immediate bounce from here is needed to prevent further fall towards 98-97 in the near term. Watch price action near current levels.
Dollar Index (102.06) has come off after testing 102.94. Note that 104 is a crucial resistance above current levels as the index has broken above interim resistance mentioned at 102. We would watch for a corrective fall from here back towards 101-100 failure of which could increase chances of further upmove in the near to medium term. Watch price action on a dip below 102.
Euro (1.0725) has come down to test support at 1.07 which if holds could produce a decent bounce in the near term back towards 1.0850. Watch for a fall below 102 on Dollar Index that may indicate a bounce in Euro in the next couple of sessions.
The recent fall to 101.18 on Dollar-Yen (110.29) has been proven to be a false break below support at 106 as the exchange has bounced back well to levels where it was a couple of weeks ago. Continued rise from current levels could take it higher towards 111-112 in the coming weeks from where a dip could be expected.
EURJPY (118.02) has fallen slightly. But we would prefer support at 116 to hold. Broad range of 116-120.50 is holding for now.
Aussie (0.58594) tested a low of 0.5506 yesterday and has now bounced back along with the rise in Copper prices heading towards 0.60. A sustained rise above 0.60 is needed to see a decent bounce towards 0.62-0.63 again.
Pound (1.1605) tested 1.14 on the downside before bouncing back from there. However, while below 1.20, near term view continues to be bearish. It is to be seen if a bounce from here takes Pound back to 1.20+ levels in the near term.
USDCNY (7.0796) has risen further and we may see a possible test of 7.10-7.12 before a dip from there.
USDINR (75.00) closed near 75 yesterday but could see a dip today to 74.80/60. A break above 75, if seen and sustained could turn further bullish towards pour mentioned levels of 75.50. NDF quotes 74.83 just now.
INTEREST RATES
“Do whatever it takes” – the famous phrase of the former ECB President Mario Draghi seems being to be followed by almost all major central banks to fight the impact of the corona virus outbreak. Following the recent actions from the US Fed and the ECB, the Bank of England had cut rates by 15 bps to 0.1% from 0.25% yesterday and announced more stimulus. Earlier the BoE had cut rates by 50 bps last week. The US Treasury yields have crucial resistances coming up which can cap the upside and drag them lower again. The German Yields have moved up in line with our expectation and has little room to move up further. The 10Yr GoI can rise in the near-term before resuming its overall downtrend.
The US 2Yr (0.45%), 5Yr (0.69%), 10Yr (1.14%) and 30Yr (1.78%) yields have come-off sharply across tenors. . The resistance the 1.2%-1.3% region seems to be holding well in line with our expectation on the 10Yr. Though another attempt to this resistance cannot be ruled out, we can expect the upside to be capped at 1.3% for now and the 10Yr is likely to come down again towards 1% and even below it in the coming weeks. The 30Yr has cluster of resistances in the broad 1.7%-2% which can restrict the upside and drag it lower again.
The German 2Yr (-0.71%), 5Yr (-0.43%), 10Yr (-0.20%) and 30Yr (0.13%) yields have risen further across tenors in line with our expectation. As mentioned yesterday, the 10Yr has risen to test the crucial level of -0.20%. The region between -0.20% and -0.17% will be key to watch on the 10Yr that needs to be broken now in order to take it higher to 0% and also to avoid a fall-back move to -0.40%. We will have to wait and watch. The 30Yr has room on the upside to test 0.20% and 0.25% after which it can come down again.
As expected, the 10Yr GoI (6.4097%) had tested 6.45% and has come-off from there. The chances of the upmove extending upto 6.50% and even 6.55% (as against our earlier view of 6.45% being the cap on the upside) cannot be ruled out. However, the broader picture continues to remain bearish and we expect the 10Yr GoI to resume its overall downtrend anywhere from the broad 6.45%-6.55% resistance region.
