STOCKS
The news on global major banks dealing with illicit funds and the fear of another lock-down in the European countries following the surge in corona virus cases have triggered a sharp fall in the equity segment yesterday. This sell-off, if sustains will confirm the beginning of the sharp correction from here itself that we had been expecting without seeing another leg of rise. Crucial supports are there near current levels on major indices. A break below it will trigger further fall. 27000 on the Dow, 12400 on the DAX, 38000 on the Sensex and 11200 on the Nifty are important levels to watch over the next few days.
As expected, the Dow (27147.70, −509.72, -1.84%) broke below 27500 and fell to test 27000 yesterday. Though 27000 is holding for now, the outlook has turned weak. With strong resistance in the 27500-28000 region, the Dow looks vulnerable to break 27000 and fall to 26000-25500 in the coming weeks.
Contrary to our expectation, DAX (12542.44, −573.81, -4.37%) has tumbled breaking below 12800 yesterday. Our bullish view of seeing 13800 on the upside stands negated now. Inability to bounce from here and a subsequent fall below 12400 will drag the DAX lower to 12000 and even lower in the coming weeks.
Nikkei (23360.30) is closed today.
Shanghai (3296.62, −20.31, -0.61%) has come-off below 3300 again following the sell-off in the global markets. While below 3300, a revisit of 3200 levels is possible in the coming days. The broader 3180-3450/70 range is intact and as such the price action in the 3200-3180 region will need a close watch.
Contrary to our expectation, Nifty (11250.55, -254.40, -2.21%) broke the 11400-11600 range on the downside and has declined sharply. 11200 will be very crucial to watch today. A strong break below it will see the fall extending to 11000-10800 in the coming days. It will also completely negate our earlier bullish view of seeing 11800 on the upside.
Sensex (38034.14, −811.68, -2.09%) is poised at a crucial level of 38000. A bounce from here can keep the index in the 38000-39000 range. But a strong break below 38000 will increase the danger of seeing 37000 on the downside. We will have to wait and watch.
COMMODITIES
Commodities reverse from the strong trade seen yesterday as US Dollar gains strength. Crude, Gold, Silver and Copper all trade lower today and if the Dollar Index manages to rise sharply above its immediate resistance at 94 (refer to forex section below), we may expect a further decline in commodities. However, we also keep a close watch on respective supports on all the below mentioned commodities that still indicate a possible bounce back in the next few sessions.
Brent (41.54) and Nymex WTI (39.68) continue to trade today but our expected rise to 45-47.50 (Brent) and 43-44 (WTI) could be delayed in the medium term if US Dollar continues to strengthen. Watch for a possible break above 94 on Dollar Index which if seen could drag down crude prices towards supports near 39.32 (Brent) and 36.43 (WTI) again. For now, we allow for a dip to interim supports but do not fully negate a possible bounce to higher levels.
Gold (1913.50) has broken below 1930/20, the level we were looking for a bearish confirmation. While below 1920, there is scope for a test of 1880 on the downside before a bounce back is seen. Failure to immediately bounce back today to 1930+ levels would allow for a fall to 1880 in the near term.
Silver (24.70) has fallen sharply. Immediate trend support is seen above 23 and while that holds, a bounce looks possible in the next few sessions. Watch if support near 23 holds.
Copper (3.0515) fell from 3.12, lower than the resistance at 3.15 we were looking at. But while above 3.00, we may not negate a possible rise back towards 3.10/15 in the near term.
FOREX
Strength in dollar Index has dragged down other currencies like Aussie, Pound, Euro, EURJPY and USDINR which looks weak for the near term now. Watch out important supports/resistances on the different currency pairs.
Dollar Index (93.56) rose from our expected support near 92.70 and has bounced back well towards the upper end of the 92.70-93.70 range that we have been mentioning for quite some time now. It would be important to see if 93.70 and further 94 breaks on the upside to keep the upward momentum strong and lead to a strong upmove. Else, a fall back to 92.70 could be possible by the end of this week.
Euro (1.1761) has fallen back to test 1.1731 before rising slightly from there. Failure to sustain above 1.18 could indicate inherent weakness that could sustain for the next 1-2 weeks probably dragging down the currency lower. A break or fall from 94 on Dollar Index would be crucial to watch.
Monthly resistance near 128 on EURJPY (122.99) has held well and indicates further bearishness for the pair for the next 1-2 months before a possible bounce is seen. We may look for a test of 122 in the near term but a decline below 122 if seen could open up chances of a fall to 120 in the longer run (1-2 months).
Dollar-Yen (104.55) has risen a bit as Dollar has risen. But we continue to keep a possible scope for a test of 104 before a bounce is seen towards 105+.
Aussie (0.7219) is showing signs of breaking below 0.72 which if sustains could be bearish for Aussie towards 0.70 in the medium term (1-2 weeks).
Pound (1.2816) is holding below 130 and if the fall sustains, there is scope for a fall towards daily trend support near 1.27 before another bounce is seen. Immediate view is bearish while below 1.30.
USDCNY (6.7860) has risen above our expected 6.78 to test 6.80 on the upside before falling off from there. A broad range of 6.80-6.75 could be possible in the near term. A break above 6.80, if seen could pull the pair back towards 6.90/95 in the longer run.
USDINR (73.3825) closed well below 73.50 on the OTC yesterday but bounced back sharply to test 73.55 after the OTC market close of 2pm. If that sustains, we may expect a higher opening today with a possible test of 73.50/60 on the upside. A broad range of 73.20-73.80 could hold for the rest of the sessions this week.
INTEREST RATES
The US Treasury yields are moving down towards the lower end of their short-term sideways range. It will have to be seen if the range support can hold and produce a bounce to retain the sideways move for some more time or not. The German yields have declined sharply and keep our bearish view intact. A further fall is possible in the coming days. The 10Yr GoI continues to look mixed and can remain sideways for some time.
The US 2Yr (0.14%) and the 5Yr (0.27%) Treasury yields remain stable while the 10Yr (0.67%) and the 30Yr (1.41%) have dipped by 3 bps and 5 bps respectively. The 30Yr has to sustain above 1.40% in order to keep the chances alive of seeing a rise to 1.60%. A break below 1.40% will be bearish to see a fall to 1.30%-1.25%. The 10Yr remains stable within its 0.65%-0.75% range. A breakout of this range will decide whether the 10Yr will go up to 0.80% or fall to 0.50%.
The German 2Yr (-0.73%), 5Yr (-0.73%), 10Yr (-0.53%) and the 30Yr (-0.10%) have declined sharply across tenors. The bearish view is intact. The 30Yr has declined to -0.10% as expected and can now extend the fall to -0.20% from where an intermediate bounce is possible. The 10Yr can test -0.60% and even -0.70% on the downside in the coming days.
The 10Yr GoI (6.0158%) hovers around 6% and continues to look mixed. The 5.95%-6.05% range remains intact. A breakout of this range will decide whether the 10Yr GoI will fall to 5.90% or go up to 6.10%-6.15%.
