STOCKS
Dow fell to test 34000 as expected after the US Federal Reserve meeting outcome yesterday. The Fed has raised the inflation forecast for 2021 and hinted two rate hikes by end 2023 from its dot-plot. It will have to be seen if Dow bounces today or extends the fall to 33500. DAX remains below 15800 and can fall to 15400 if it breaks below 15600. Nikkei has declined below 29000 and can test 28500. Shanghai has tested 3500 and holding above it. Sensex and Nifty fell sharply yesterday and can extend the fall following the global equities to test their key support levels of 52000 and 15600 respectively.
Dow (34033.67, −265.66, -0.77%) has tested 34000 as expected and has bounced from the low of 33917.11. It will have to be seen if it can move up today or not. A fall below 34000 can drag it to 33500-33200 in the coming days before reversing higher again. 33500-33200 are important supports below 34000 which will need a close watch.
DAX (15710.57, −18.95, -0.12%) is stuck between 15600 and 15800. We will have to wait for a breakout on either side to see if DAX can move up to 16000-16100 or fall to 15400. While above 15400 the broader trend will remain up to test 16000-16100 on the upside. Only a break below 15400 will bring the index under pressure.
Nikkei (28906.75, −384.26, -1.31%) has declined sharply and is trading below 29000. A test of 28500 is possible now and need to see if it can bounce-back from there. 28000 is the next important support below 28500. The long-term trend will remain up as long as Nikkei stays above 28000.
Shanghai (3525.17, +6.84, +0.19%) has tested 3500 as expected and has bounced from there. While above 3500, a test of 3550-3560 is possible in the near-term. Incase of a break below 3500, the fall can extend up to 3450 before a strong reversal is seen.
Sensex (52501.98, −271.07, -0.51%) and Nifty (15767.55, −101.70, -0.64%) fell sharply yesterday contrary to our expectation to see a further rise. A further fall today to test the supports at 52400 and 52000 on Sensex and 15600 on Nifty is possible in the near-term following the fall in the global equities. 52000 (Sensex) and 15600 (Nifty) are crucial levels to watch in the coming days which will have to hold in order to keep the uptrend intact.
COMMODITIES
Crude prices have tested initial resistance at $75 (Brent ) and $73 (WTI) from where a dip has been seen but we may expect prices to recover in the medium term to head higher again. Gold and Copper have fallen sharply on strong Dollars while surprisingly Silver has remained stable above 27. We may look for recovery in commodity prices soon.
Brent (73.71) and WTI (71.51) tested 74.96 and 72.99 on the upside post the FOMC and have fallen from there. We may expect $75 and $73 to hold on Brent and WTI for now before the prices rise again to re-test them in the near term. We continue to see possible targets of $75-77 on Brent and $73-75 on WTI, initial limit of both being tested yesterday.
Gold (1825) has fallen sharply on strong Dollar overnight taking it down to test support near 1820-1800 while Silver (27.23) continues to remain above 27 surprisingly, indicating some intrinsic strength to move back to higher levels. Silver continues to trade within 27.0-28.50 while Gold could attempt to bounce back towards 1840/60 in the near term. Failure to hold above 1800/20 for Gold could make it vulnerable to a sharp fall to 1750 in the longer run. Watch for a bounce while above 1800/20.
Copper (4.3355) has too fallen sharply and a break below 4.30, if seen would take it further down to 4.20-4.00 in the near term. Copper looks bearish for the near term.
FOREX
US FED held rates at zero but indicated that it expects two rate hikes by the end of 2023 puling up the Dollar Index sharply above 91. The FED pledged to continue its asset purchases at $120 billion monthly until substantial further progress is seen on employment and inflation. It raised the expectation for headline inflation to 3.4% compared to March projection of 2.4%.
Dollar Index, USDJPY, USDCNY all trade higher after the FOMC statement and could recover a bit over today and tomorrow to end the week on not so higher note. Aussie, Pound,EURJPY have fallen well but could recover in the near term. USDINR is expected to rise to 73.50/60 initially but we would allow for a maximum upside of 73.80 within the current upmove.
Dollar Index (91.348) tested 91.48 exactly in line with our expectation of a rise towards 91.0-91.50 mentioned yesterday. The index has dipped from 91.50 and could fall back to 91 while 91.50 holds as a decent resistance just now. We would not be going long on Dollar Index just now as the sharp rise could be a one-day show, in reaction to the FOMC policy statement. For the index to indicate long term bullishness, we will have to see a sustained rise above 91.50 which looks less likely for now. We would wait to watch price action for a few more sessions.
Euro (1.20) has fallen to 1.20 after the FOMC and impacted by the movement in Dollar Index. It would now be important to see if Euro bounces back from here to slowly head back towards 1.2050-1.21 or sustains below 1.21 in the medium term. A bounce back from here looks more likely.
EURJPY (132.78) fell back to132.62 but could soon move up again in the near term towards 133. A break above 133 would then be crucial to push the cross higher.
Dollar-Yen (110.64) tested 110.82, in line with our expectation for a rise to 110.50/111. But we may expect 111 to hold for now and let the pair fall towards 110.30 in the next 1-2 sessions.
Aussie (0.7628) tested 0.76 and has bounced slightly from there. A rise to 0.7650 is possible now in the very near term.
Pound (1.3998) fell sharply but while above support at 1.3950, Pound is likely to bounce back to 1.4050 in the next few sessions. View is bullish while above 1.3950.
USDCNY (6.4194) has risen to sustain above 6.40 and while it trades above 6.40, there is scope for a further rise to 6.44/45 in the near term. A sustained break above 6.45 is needed to negate any further fall from here in the medium term.
USDINR (73.3275) closed above 73.30 yesterday but if the pair manages to rise further, we may expect a test of 73.50/60 on the upside. Maximum upside within the current rise could be seen towards 73.60/80 before any fall from there is seen in the longer run. Watch price action near 73.50/60 if such a rise is seen today itself.
INTEREST RATES
Strong rise in the US Treasury yields following the US Federal Reserve’s upward revision in the inflation forecast for 2021 and its dot-plot suggesting two rate hikes by end 2023. The PCE inflation projection for 2021 is now at 3.4% up from 2.4% projected in March. 1.6% on the 10Yr will be a crucial level to watch. A break above it will pave way for further rise. The German yields hover near their key supports which we expect to hold and produce bounce in the coming weeks and keep the overall uptrend intact. The 10Yr GoI can rise in the near-term before reversing lower again.
The US 2Yr (0.21%), 5Yr (0.89%) and the 10Yr (1.57%) Treasury yields have surged while the 30Yr (2.20%) remains relatively stable. The rise to 1.58% on the 10Yr has happened as expected. 1.6% will be a key level to watch now. A break above it will pave way for a further rise to 1.7%-1.8% again. The 30Yr on the other hand can gather momentum to test 2.35%-2.4% again on a strong break above 2.25% from here.
The German 2Yr (-0.69%), 5Yr (-0.62%), 10Yr (-0.25%) and the 30Yr (0.30%) yields remain stable. Our view remains the same. -0.30% (10Yr) and 0.25% (30Yr) are the key supports which we expect to limit the downside and keep the overall uptrend intact. A fresh rise from here can take the yields up to 0% (10Yr) and 0.55% (30Yr) over the medium-term.
The 10Yr GoI (6.0450%) had come-off sharply from the high of 6.0673% yesterday. With support at 6.03% (revised from 6.04% mentioned yesterday), the view of seeing a rise to 6.08%-6.10% first remains intact. Thereafter the yield is likely to reverse lower again and keep the broader downtrend intact.
