STOCKS
Overall some correction is visible in global equities after some strength seen last week. Some sideways movement could be expected in the early sessions this week before the upward momentum takes force.
Dow (20093.78, -0.04%) could possibly see a sideways trade in the 20000-20150 region for a couple of sessions before moving higher towards 20500. While the support at 20000 holds, we keep the upside possibility of 20500-20700 open for the near term.
Dax (11814.27, -0.29%) is trading just below immediate resistance zone of 11920-11930 (within the broad 11900-12000 resistance levels) which could keep the index down for at least the next 2-3 sessions. We could possibly see a re-test of 11680 before seeing a sharp bounce back towards current levels.
The Chinese markets are closed today. But after the holiday session is over, we may expect Shanghai (3159.17, +0.31%) to rally towards 3175-85 levels. Note weekly resistance near 3200 which could hold in the near term.
Nikkei (19322.78, -0.74%) could remain range-bound in the next few sessions in the 19000-19620 region but could regain strength possibly by the end of the week to move up strongly towards 19620-19750 levels in case a sharp rise is seen in Dollar-Yen (114.38).
Nifty (8641.25, +0.45%) shot up moving above 8600 last week and could be headed towards 8740-8800 levels as mentioned earlier. But also note immediate resistance visible on the near term charts near 8650 which could push the index towards 8600 or lower just now.
COMMODITIES
Gold (1194.57) has moved up again on slight weakness in the Dollar Index. But note that immediate resistance is visible near 1200-1210 region which is likely to keep prices low in the near term. We may continue to target levels of 1160 while below 1210.
Silver (17.17) is trading below the 17.50 resistance and while that holds, it could come off towards 17.00-16.00 levels in the near term.
Brent (55.32) and WTI (53.02) have been range-bound in the broad 52.50-58.50 and 50-56 regions respectively and unless a sharp breakout on either side is seen, it is difficult to say how long this sideways consolidation would continue. While we keep the overall longterm bullish sentiment intact, we need to wait for confirmation in the near to medium term.
Copper (2.69) has risen and could re-test the previous highs of 2.75-2.78 levels in the near term. Also note that the 2.75-2.80 zone is a crucial resistance zone and could possibly hold for the medium term. Only a sustained break above 2.80 could ensure further bullishness on Copper.
FOREX
Dollar Index (100.20) was unable to sustain the rise of Thursday-Friday and trades lower today. But, it also has important Support in the 100.05-99.75 region. This week, the market will battle to see whether this Support is broken or not.
Maybe the curencies will consolidate/ move sideways for a while in the coming week or two. A biggish move could be in the offing after the consolidation. The markets will be keen to know the Fed’s path for increase of interest rates after the FOMC meeting on Wednesday, especially in light of the weak Q4 GDP data in the USA. While further Dollar weakness is a possibility, confirmation is needed.
Should the Euro (1.0730), which has bounced from Friday’s Suport levels, break above crucial near-term Resistance at current levels, it can rise to test 1.08. However, the Euro might not find more near term strength from rising European interest rates (see Interest Rates below).
Re-examining what we said on Friday, we find that Dollar-Yen (114.45) has important Resistance at 115 (5-week MA) this week, which could keep it pressured lower. If so, there could be danger of a break below 113.85-65 going into next week. Break above 115.00 is needed to bring up 115.60/ 116.30.
The Pound (1.2590) is potentially bullish but needs to break above the 21-week MA near current levels convincingly. Success can take it up towards 1.29. Medium/ long-term Support at 1.2400 now.
Like the Pound, the Aussie (0.7558) has potential to rise further towards 0.77, but faces Resistances on the Weekly charts. Failure to rise can push it down towards 0.74
Dollar-Rupee (68.04) trades near 68.06 on the NDF today. Likely to trade sideways for the next couple of days at least.
INTEREST RATES
Although Yellen’s speech earlier in the month had indicated a 75bp hike in rates in 2017, the market will like to see what the FOMC says on Wednesday. How will it reconcile the recent dip in US Q4 GDP (http://kshitij.com/graph-gallery/fundamentals/usgdp)to 1.86%, compared to 3.47% in Q3 on the one hand and the concerns about Dollar strength on the other hand?
We see interest rates stabilising in the near term in both the USA and in Europe. While US interest rates have been rising again since mid-Jan, European rates have been rising through January as a whole. This is reflected in the rise in the German-US 2Yr Yield Spread (-1.92%), which remains in an uptrend for now.
But, we also keep in mind that the German 2Yr itself may find some Resistance near the current levels of -0.67%.
