STOCKS
Equities are under pressure. Sharp sell-off has been seen yesterday across the global equities. Our cautious stance on the equity segment has worked out well and the long-awaited correction seems to have begun. 30000 on the Dow will need a close watch which if broken can trigger a much deeper fall. DAX can test 13200 now. Nikkei is holding above 28000 for now but can break below it and fall to 27000-26500 in the coming days. Shanghai has declined as expected and can test 3475-3450 now. Sensex and Nifty have declined breaking below their key supports and look vulnerable to see a much deeper fall from here.
Dow (30303.17, −633.87, -2.05%) has tumbled to test and close just above the crucial 30300-30000 support zone. As we have been mentioning for some time, a strong break below 30000 will confirm that a top is in place and trigger a deeper correction to 29000 and even lower in the coming weeks. The chances of seeing an extended rise to 31500-32000 stands reduced now.
DAX (13620.46, −250.53, -1.81%) has declined sharply failing to sustain the bounce seen on Tuesday. The chances of seeing a break above 14100 is getting reduced. The expected break below 13600 and a fall to 13200 can happen now. A corrective bounce from 13200 is possible before a much deeper fall to 13000-12800 is seen.
Nikkei (28323.06, −312.15, -1.09%) tested 28000 and has bounced-back from there. As we have been mentioning for some time, a strong break below 28000 is needed to confirm a reversal and drag the index lower to 27000-26500. While below 28500 now the chances of breaking below 28000 is high.
Shanghai (3516.04, −57.30, -1.60%) has declined below 3525 and can now head down towards 3475-3450 as mentioned yesterday. The chances of the fall extending up to 3400 cannot be ruled out. From a medium-term perspective, 3400 will be a crucial level to watch which has to hold in order to keep the overall uptrend intact.
Sensex (47409.93, −937.66, -1.94%) and Nifty (13967.50, −271.40, -1.91%) have declined sharply breaking below their crucial support levels of 48000 and 14200 respectively. This confirms the reversal and can now take the indices further lower to 13800-13600 (Nifty) and 46000 (Sensex) and even lower in the coming weeks.
COMMODITIES
Rise in Dollar Index yesterday lead to fall in precious metals and other commodities. Copper trades at important support levels which if breaks could make it vulnerable to a sharp fall in the near term. Gold and Silver look stable to bearish. Gold may test 1820 on the downside while Silver may remain within 24-26.Crude pries are fairly stable below respective resistances and may remain so for some more sessions.
Brent (55.60) and Nymex WTI (52.71) look stable near levels seen yesterday. While below resistances near $58 and $55, we may expect ranged sideways trade to continue for a few more sessions.
Gold (1838.90) trades below 1840 and now could be headed towards lower support near 1820. Failure to bounce from 1820 could make it vulnerable to test 1800 or lower in the medium term. For now, Gold is bearish towards 1820.
Silver (25.15) seems to be stuck within 24-26 region just now and unless a break above 26 is seen, a rise to 27 could be delayed further. While 24 continues to remain an important support, a rise to 26-27 could slowly be achieved.
Copper (3.5505) has come down sharply to test support at 3.55 and if this fails to produce a bounce immediately, we may have to allow for a further dip towards 3.45/40 in the medium term. Watch price action near 3.55. Copper looks vulnerable for a sharper fall in the near term.
FOREX
An ECB governing council member, Klaas Knot said yesterday that the ECB has necessary tools, including interest-rate cuts t prevent any further strengthening of the Euro undermining inflation. This lead to a sharp fall in Euro yesterday dragging it down to 1.2058. Immediate view on the dollar Index is to see a possible rejection from 91, failure of which would take it higher towards 91.50-92. Euro needs to sustain above 1.2058 in order to slowly move up again. Aussie, Pound and Rupee looks weak for the day. USDJPY may also be headed up. Overall currencies may trade weak against the US Dollar for the very near term.
Dollar Index (90.756) trades higher but needs to break above 91 in order to gain the upward momentum. Watch price action near 91 in the near term.
Euro (1.2088) has bounced slightly from yesterday’s low of 1.2058. If Euro manages to trade above 1.2058, we may expect a steady rise back towards 1.21 or higher; else a dip towards 1.20 or lower cannot be negated in the near term.
Dollar-Yen (104.32) has risen sharply contrary to our expectation of a fall towards 103. The rise has been triggered by a bounce in the Dollar Index yesterday. While the index trades higher Dollar Yen may have scope to trade above 104.05/20 in the near term. Failure to decline from 104.40/50 could take the pair higher towards 105 in the near term. Watch price action to see a possible dip from 104.40/50.
Aussie (0.7631) has fallen within our expected range of 0.78-0.76 to test the lower end of the range. A bounce from 0.76 would be needed to take it back towards 0.77-0.78 again else we may expect a decline towards 0.75 in the medium term.
Pound (1.3663) has dipped from levels seen yesterday but holds above support at 1.36 just now. A break below 1.36 if seen could make it vulnerable to a sharper decline in the medium term. Watch price action near 1.36.
USDCNY (6.4831) seems to be stuck in the 6.50-6.44 region and may continue so for some more time as the pair has not been able to fall below 6.44 on dollar strength. But overall view is bearish while below 6.50.
USDINR (72.9250) bounced back sharply from support near 72.78 and while that holds, a rise to 73.20/25 cannot be negated today especially on the back of sharp decline in Euro seen yesterday. While the Euro trades lower, it would continue to keep pressure on the Rupee for some weakness in the near term. Watch price action today for a possible sharp rise from levels near yesterday’s close.
INTEREST RATES
The US Treasury yields have dipped further and are keeping our near-term bearish view intact. The sell-off in equities keeps the yields under pressure. The US Federal Reserve yesterday left the rates and stimulus program unchanged. The German yields also remain lower and look vulnerable to fall further in line with our expectation. Comment from one of the ECB’s Governing Council members that there is room for further rate cut can keep German yields under pressure. The 10Yr GoI remained stable yesterday and can oscillate in a sideways range before falling further.
The US 2Yr (0.12%) and 5Yr (0.41%) Treasury yields remain stable while the 10Yr (1.02%) and 30Yr (1.78%) have dipped further. Our view of seeing a test of 0.90%-0.80% (10Yr) and 1.75%-1.70% (30Yr) on the downside remains intact. A strong break below 0.80% (10Yr) and 1.70% (30Yr) will completely negate the chances of revisiting 1.20%-1.25% (10Yr) and 1.95%-2% (30Yr) on the upside and will confirm the resumption of the long-term downtrend.
The German 2Yr (-0.75%), 5Yr (-0.75%), 10Yr (-0.54%) and 30Yr (-0.12%) yields have dipped further and are keeping the view of testing -0.60% (10Yr) and -0.20% (30Yr) on the downside intact. We reiterate that the yields have to breach -0.50% (10Yr) and -0.10% (30Yr) to negate the bearish view and move up to -0.40% and 0%-0.05%. But, that looks less likely.
The 10Yr GoI (5.9550%)remained stable within the 5.92%-5.98% range (revised from 5.93%-5.98% mentioned yesterday). The sideways range can remain intact for some time. As mentioned yesterday, the bias is bearish to break below 5.92% and fall to 5.90% and 5.88%-5.86% eventually. The upside is likely to be capped at 6%.
