STOCKS
Asian are trading in the red as the market seems to be turning cautious ahead of the US President Donald Trump’s press conference on China due today. Broadly the major indices like the Dow, Nikkei and DAX have come closer to their key resistances, with little room on the upside from here. As such, it will have to be seen whether the outcome of Trump’s press conference today can be a trigger for the preferred corrective fall that we have been mentioning over the last few days. We will have to wait and watch. The key resistances to watch are 26000 on Dow, 12000-12100 on DAX, 22000/22500 on Nikkei. Shanghai remains stable for now. Sensex and Nifty have risen further sharply yesterday and have room to test their resistances at 9700 and 33000.
Dow (25400.64, −147.63, -0.58%) has dipped slightly but remains above 25000. As mentioned yesterday we see 26000 as a key resistance that can cap the current rally. While a test of it in the near-term is possible, inability to breach 26000 can trigger a corrective fall towards 25000-24500 going forward. The price action in the next few days will need a close watch.
DAX (11781.13, +123.44, +1.06%) sustains higher and keeps our bullish of testing 12000-12100 on the upside. As mentioned yesterday, we prefer to see a corrective fall from the 12000-12100 region towards 11600-11500 in the coming days.
Nikkei (21833.70, −82.61, -0.38%) has come-off slightly after surging to a high of 21926 yesterday. Inability to breach 22000 can trigger a corrective fall to 20500-20000 from here itself instead of a reversal after an extended rise to 22500. We will have to wait and watch. However, as mentioned yesterday the medium-term outlook is bullish and the current rally has potential to target 24000 on the upside.
Shanghai (2851.45, +5.23, +0.18%) remains stable above 2825. As mentioned yesterday a decisive close above 2850 is needed to strengthen the momentum and move up towards 2900. Else the index can remain stuck in a range of 2825-2850 (narrow) or 2800-2850 (Wider). Our bias is bullish and we prefer the index to breach 2850 decisively and rise to 2900 in the coming days.
Nifty (9490.10, +175.15, +1.88%) has risen further sharply to test 9500 as expected. The outlook remains bullish and there is room to test 9700 on the upside in the near-term. As mentioned in our Rupee comments yesterday, 9700 is a crucial resistance which will need a close watch as a corrective fall is possible from there. 9250-9200 will be a good support zone now.
Sensex (32200.59, +595.37, +1.88%) on the other hand has risen above 32000 and can now target 33000. 31000 will now be a good support. The chances of this rally extending beyond 33000 upto 34000 will have to be seen.
COMMODITIES
The Energy Information Administration (EIA) reported crude inventories rose 7.9mln barrels for week ended 22nd May but despite the build in crude stocks, crude prices have risen contrary to our expectation of seeing a dip. OPEC and OPEC+ is uncertain whether to continue the April supply deal of 9.7mln bpd cut as they are scheduled to meet on 9th June to discuss the same. Adding to these, concern looms whether Washington would impose sanctions on China. Overall commodity prices are mixed but show intrinsic potential to rise in the near term. Gold and Silver trades higher and could rise in the near term. Copper looks stable within a sideways range.
Brent (35.79) and Nymex WTI (33.32) have continued to rise despite inventory builds, signaling the intrinsic strength of a potential rise. In the near term we would continue to look for $37.50 to hold on Brent and $35 on WTI.
Gold (1731.90) has moved up and is likely to continue trade within the broad 1715-1775 region in the near term. There is lack of directional clarity just now but with long term resistance at 1800, preference would be an eventual fall below 1700 in the longer run. View is sideways consolidation in the 1715-1775 region.
Silver (17.94) has been trading within 17.20-18.15 region for the last few sessions and while that holds, we may expect the range to continue for some more time. An eventual rise to 19 could be on the cards for medium term.
Copper (2.4065) continues to trade in the 2.30-2.50 region and is likely to continue so for some more sessions in the near term. We would have to wait for price confirmation on a break of either side of the range to get some clarity on further direction of the metal price.
FOREX
Major currencies could gain on fresh weakness in Dollar Index in the near term. Dollar Index has broken below crucial support and looks bearish for the near to medium term dragging Euro higher which could now focus to rise towards 1.12-1.1350 levels. Dollar-Yen looks bearish for the near term in line with the fall in Dollar Index and could also indicate bearishness in Nikkei in the near term (refer to Equity section above). EURJPY looks strong. Pound and Aussie are bullish too.
Dollar Index (98.38) has sharply broken below our expected support near 98.75. The index has fallen after a triangle-like consolidation pattern on the charts and could be dragged down towards 97.0-96.40 in the medium term. View turns bearish on Dollar Index while below 98.75.
Euro (1.1085) has moved up sharply, also breaking out from a triangle-like pattern on the near term charts and could possibly continue its upmove towards 1.12-1.1350 in the sessions to come. View is bullish for Euro in the near term.
Dollar-Yen (107.40) is holding below resistance at 108 just now and could tilt to the downside in the near term. A dip towards 107.0-106.75 is possible in the near term. Only if a sustained break above 108 is seen, we would negate bearishness and turn our focus to higher levels. Till then Yen looks strong.
EURJPY (119.05) is up on Euro strength and while Euro is expected to rise in the near term, EURJPY too could move higher towards 120 or higher in the near to medium term.
Pound (1.2323) has moved up too and seems to attempt a break above immediate resistance. A sustained break above current levels would indicate further upmove towards 1.2475.
Aussie (0.6640) is inclined to rise while above support at 0.6525. We continue to remain bullish towards 0.6760 in the medium term.
USDCNY (7.1518) has dipped slightly after testing 7.1766 on 27th May. While 7.18 holds as interim resistance we may expect a fall towards 7.12 or at least some sideways consolidation between 7.18 and 7.13 in the near term reducing a possible negative impact on the EM currencies.
USDINR (75.7550) could gain a bit as combined impact of a stronger Yuan and Euro along with the weakness in the US Dollar. We may expect trade below 75.85 today with a possible fall towards 75.60/50 over the next 1-3 sessions. View could be slightly tilted to the downside.
INTEREST RATES
The US Treasury yields have dipped slightly from levels seen yesterday. However, we prefer the Treasury yields to sustain higher and move up eventually in the coming days. The outcome of the US President’s press conference today on China will need a close watch to see if it can re-ignite risk aversion in the market and drag the yields lower. The German yields remain stable below their key resistances which are likely to cap the upside and drag the yields lower. The 10Yr GoI can remain stuck in a narrow range for some more time before breaking the range on the upside and move up eventually.
The US 2Yr (0.16%), 5Yr (0.32%), 10Yr (0.68%) and 30Yr (1.46%) Treasury yields have dipped across tenors from levels seen in early Asian trades yesterday. However, the 30Yr remains above 1.45% and is bullish to see a gradual rise to 1.50% and even 1.60% in the coming weeks. Only a fall below 1.40% will negate/delay this rise. The 10Yr on the other hand remains below 0.71% and is retaining its 0.58%-0.71% sideways range. As mentioned yesterday, a strong rise past 0.71% will be needed for it to gain strength and move up to 0.80% and higher levels.
The German 2Yr (-0.65%), 5Yr (-0.62%), 10Yr (-0.42%) and 30Yr (0.02%) yields remain stable near their crucial resistances. As mentioned yesterday, 0.05% on the 30Yr and -0.40% on the 10Yr are crucial resistances which can cap the upside. We expect the yields to remain below these resistances and fall towards -0.10%/-0.20% (30Yr) and -0.60% (10Yr) in the coming weeks.
The 10Yr GoI (5.9898%) is stuck in the 5.95%-6% range as expected and has been inching higher within this range While this narrow range move can remain in place for some more time, we expect the yield to breach 6% eventually and rise to 6.15%-6.20% in the coming weeks.
