STOCKS
Dow (24542.54, +0.75%) has finally closed above 24500, breaking above the near term range. While the index continues to rise, it could head towards 25000 in the next 1-2 sessions.
Dax (12943.06, +0.24%) is in an uptrend and is headed towards 13200 in the near term.
Nikkei (22440.44, +0.14%) is trapped in the 22400-22600 region. It is difficult to say if this is a short pause before a sharp upmove. Immediate resistance near 22600 is holding for now. There are equal chances of the index moving on either side.
Shanghai (3168.81, +0.31%) looks bullish in the near term while above 3150 and could test 3200-3250 soon. Near term looks bullish.
Nifty (10741.70, +0.22%) could have some scope of testing upside limits of 10800-10850 levels in the near term. Support at 10600 is holding well. Sensex (35319.35, +0.29%) is likely to move up towards 35500-35750 levels.
COMMODITIES
US Crude production has risen to 10.7mln barrels/day from 10.62 mln a week earlier (EIA report). The EIA has now raised its US crude production outlook to rise by 1.14mln barrels/day for the next year (revised from the earlier projection of 750,000 bpd).
EIA’s estimate of a reduction in US crude inventory by 2.2mln barrels last week has aided to a rise in the crude prices. Brent (77.73) and Nymex WTI (71.68) are trading just below resistances near 78 and 72 respectively. If WTI breaks above 72, it could target 74 in the medium term while a rejection would see a short dip to 70-69 again. Brent could also come down to 76 if 78 holds, else a sharp upmove is likely in the near to medium term.
Gold (1314, +0.08%) could test 1320 before again dipping back to 1300. For now Gold could trade sideways in the range of 1325-1300. A break below 1300, if seen would open up chances of testing 1280 on the downside.
Copper (3.0720, +0.4%) may test 3.10-3.12 on the upside before again dipping back to 3.07.
FOREX
Dollar index (92.99) saw a slight dip yesterday from levels near 93.3-93.4 towards 92.8-92.9. It should rise back up towards 93.5 again by tomorrow (maybe after seeing another dip to 92.75 today). As we mentioned yesterday, the Dollar Index (on the 1 hour chart) could be in the last leg of its 5 wave upmove from 89.23 (17th Apr onwards). This last leg could possibly end near 93.70-94.50. Our projection of the Dollar Index coming close to its medium term target of 94-95 in the next 1-2 weeks might well come out to be true. (the level 94-95 corresponds to the 5th wave starting point of the downmove since Dec ’16).
Euro (1.1863) rose towards 1.1897 yesterday and also saw a low near 1.1823. It could move up again today and test 1.19. However, after that we expect it to dip lower (and possibly test 1.18) by this week’s end / early next week. Repeating yesterday’s comment: corresponding to the Dollar Index’s upmove towards 93.70-94.50, the Euro could have its current downmove restricted till 1.1775-1.1655, after which it could again start rising after a couple of weeks. If the Dollar Index tests 95, Euro could simultaneously test 1.160-1.158.
Dollar Yen (109.72) has continued rising from support (near 108.75) on the upward trendline on daily candles and has seen a high near 109.99. It could be in the last leg of the 5 wave upmove starting from near 104.6 in March end. This current upmove could take it higher towards 110.5-111.0 (earlier max mentioned as 110.75) in the near term. The broader uptrend looks capped till 110.50-111.0, after which Dollar Yen could turn bearish.
Euro Yen (130.17) as per our expectation is currently respecting support on weekly candles near 129.3-129.2 and might continue doing so for a few days till the Dollar Yen continues its upmove towards 110.5-111.0. After that, as the Dollar Yen turns bearish, we could see Euro Yen break below 129.
Pound (1.3562): As per our expectation, Pound again rose above 1.354-1.355 yesterday to see a high near 1.36 (1.3607). It is currently trading lower but could possibly again test higher levels near 1.36-1.37 in the next couple of days before moving lower. If it breaks below 1.352, it could then move down quickly towards 1.325.
Dollar Rupee (67.265): Dollar Rupee may test support near 67.12, upside is open towards 67.60/70.
INTEREST RATES
The US CPI data release later today has assumed a lot of significance for the US 10 year yield. Analysts expect a 2.5% y-o-y increase in Headline inflation and a 2.2% y-o-y increase in core inflation. If the datat release meets or surpasses these expectations, it could well act as a trigger for a bond selloff, which could thereby take the 10 Year yield beyond 3% decisively. The 10 year yield has tested 3% twice over the past few days but the psychologically important level has continued acting as a resistance.
Yesterday, Trump’s withdrawal from the Iran deal took crude prices higher and also took the 10 Year yield towards 3%. However, it wasn’t enough to bring about a decisive breach of 3%.
The Fed in their last week’s meeting had expressed some hawkishness in its stance. In the near term, we are expecting US yields to start rising towards their medium term targets (see below) as the June Fed meeting comes closer (where a rate hike is widely expected).
The medium term targets for US yields in our Apr ’18 US Treasury report (available on demand) are as follows: 3.2%-3.3% (10 Year), 3.4%-3.5% (30 Year), 3.15% (5 Year) and 2.75% (2 Year). A breach of the 3% level by the 10 year yield would be vital for these targets to be achieved by June. A rate hike is expected in the June Fed meeting, which might start getting factored later this month and could henceforth lead to a rally in yields towards these medium term targets. We also expect some more yield curve flattening in the next month followed by steepening after that, as yields bounce from long term supports.
US 10 Yr Yield (2.99%), 30 Yr (3.15%), 5 Yr (2.83%), 2 Yr (2.53%):
The 2 year yield saw a high near 2.55% and could continue its upmove towards our medium target of 2.75%. We expect this level to be tested later this month or in mid June.
