STOCKS
Dow (24899.41, +0.27%) tested an intra-day high of 24994, but came off to close at lower levels. While the resistance on the daily charts holds, the index could see a short dip towards 24750-24700 before again rising back towards 25000 or higher.
Dax (12977.71, -0.18%) may test 12900 on the downside before moving up towards 13200-13300 levels in the near term. Overall trend is up and view looks bullish.
Nikkei (22862.79, -0.013%) looks strong just now and as mentioned earlier, 22600 is a strong support. While the upside momentum continues, there are chances of testing 23200+ levels in the medium term.
Shanghai (3168.60, -0.16%) is almost stable and could find it difficult to break above 3200 just now. The next 2-sessions could be stable below 3200 and thereafter either a sharp fall back towards 3100 or a break above 3200 is possible.
Nifty (10806.60, +0.10) looks bullish just now while above 10750. The index could slowly inch up towards 10900 in a few sessions.
COMMODITIES
Brent (78.28) and Nymex WTI (70.97) are trading slightly higher today. WTI could test support near 70 in a couple of days before staring to move up again towards 72 while Brent on the other hand is likely to move up towards 80 in the medium term. Both the crude prices look bullish just now.
Gold (1313.80) is trapped in the 1320-1300 region and is likely to remain so for some more time. Lack of strength in the bulls may keep the index sideways for some time. A break below 1300, if seen in the medium term could open up chances of testing 1280 on the downside.
3.05-3.15 is the broad trade region for Copper (3.0875). Price is likely to fluctuate in this region for some more time.
FOREX
Dollar index (92.64) found support at the 13 days moving average line near 92.4 and rose back towards 92.6. Rise in the US 10 year yield (see Interest Rates below) might well have been a reason for this upmove. The markets now await the Retail Sales data today. If it turns out to be higher than expected, it could take yields higher and lend strength to the Dollar; whereas lower retail sales might lead to the Dollar Index dipping lower towards the 21 days moving average near 91.8. We have been saying that the broader uptrend towards the medium term target of 94-95 remains intact and these levels could be tested in this month itself.
Euro (1.1933) saw a sharp drop from a high of 1.1996 near the 13 days MA yesterday, suggesting that the overall downtrend is still strong. However, we need to watch immediate Support at 1.1920. If that holds, the Euro could vacillate between 1.1920-80 for a while. Else, a break below 1.1920 can target 1.1860 and lower.
Dollar Yen (109.74) is respecting support on daily and 3 day candles near 109.0-109.5. Repeating yesterday’s comment: if it stays above 109, a rise back towards 110.5-111.0 in this week is still possible. If it breaks below 109.5-109.0, it could turn bearish for the medium term. Weak retail sales data might well lead to a break of this support.
Euro Yen (130.96) might find some resistance at the 13 days MA near current levels. Whether it breaches the same to target the 21 days MA near 132 could depend on how Dollar strength against Euro and Yen plays out relatively after the retail sales data today. In either case, Euro Yen should see a dip from 131 or 132.
Pound (1.3563): Our expected rise in the Pound towards 1.37 hasn’t taken place yet but could happen in the next couple of sessions if the Dollar weakens. After a test of levels near 1.37, the broader downmove for the Pound could resume.
Dollar Rupee (67.515): Can test 67.70-80 in the current move. Support moves up to 67.30-10.
INTEREST RATES
A rise in German yields (10 Year has risen from 0.5% to 0.611%) has led to the US 10 year yield also rising towards 3%. Trump’s decision to help a Chinese telecommunications company has also led to a change in the prevailing ‘trade war sentiment’ and might have been a reason for some investor flows from bonds to equity. After CPI data release last week reflected lower than expected inflation in Apr, the markets would be looking at the US Retail Sales data due later today. If retail sales also turn out to be lower than expected, it might again prevent the 10 year yield from crossing the 3% barrier. However, higher retail sales could possibly be the trigger that we have been talking about for 10 year yields to breach 3% decisively.
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 should 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 this month followed by steepening after that, as yields bounce from long term supports.
US 10 Yr Yield (2.997%), 30 Yr (3.127%), 5 Yr (2.858%), 2 Yr (2.5475%): Contrary to expectation, the US 10 Year, 30 Year and 5 Year didn’t dip towards respective supports on short term charts. If the retail sales data disappoints today, the yields could then target support levels near 2.95%-2.90%, 3.08% and 2.78% this week.
The German 10 Year – US 10 Year yield spread (-2.386), as we predicted, has seen a rise from support on medium term chart and could now continue to move up towards -2.3% in this month. Also, as expected, the German 10 year yield (0.611%) has risen from support near 0.5% on short term and medium term charts and might target resistance near 0.9% in the medium term.
Repeating yesterday’s comment: 0.9% on German 10 year yield and -2.3% on the German-US spread gives a target of 3.2% for the US 10 year which syncs well with our above mentioned medium term targets.
