STOCKS
Almost all major indices have tested resistances or are trading just below resistance levels. While those hold, there could be some collective correction in the equity indices in the near term.
Dow (24706.41, -0.78%) fell sharply from the immediate daily trend resistance as mentioned yesterday. While the fall continues, the index could come off towards 24500-24250 in the coming sessions.
Dax (12970.04, -0.059%) closed slightly at lower levels but note that there is support near 12800-12900 levels and while the support holds, medium term outlook for Dax remains bullish.
Nikkei (22728.74, -0.39%) also come down a bit to test daily channel support. If the support manages to hold, Nikkei could again start to move up towards 23000+ levels in the coming sessions. Only on a break below 22600, we may expect the index to come off in the medium term.
Shanghai (3177.87, -0.45%) could be stable below 3200 for now and while the resistance at 3200 holds, near to medium term looks bearish.
Nifty (10801.85, -0.044%) moved up to make an intra-day high of 10900 on news of the Karnataka election results. Some stability could be achieved over today and tomorrow. Immediate support is near 10800 and if that holds, the index could move up in the near term.
COMMODITIES
Brent (78.18) and Nymex WTI (71.05) are almost stable. WTI has some support near 70.50 and could move up in a few sessions while the scope on the upside for Brent looks limited. Brent has resistance near 80 and could be stable in the 80-76 region in the coming days.
Gold (1293.40) came off finally breaking below 1300 and could test 1280 on the downside before pausing. Support is visible on the 3-day candles and may hold in the medium term producing a bounce back towards 1320.
Copper (3.06) is trading just above support levels and while that holds, it could head higher towards 3.15 in the near term.
FOREX
Dollar index (93.30) moved up sharply after the US 10 Year yield rose past 3% decisively yesterday (see Interest Rates below). This was in response to US Retail Sales data matching expectation for Apr and also due to an upward revision in the numbers for April. The Dollar Index has shot up from the 13 days moving average near 92.5 and has seen a high near 93.46. It could see a dip towards 93 over today and tomorrow. However, given its broader uptrend, it could target levels near 94-95 by next week.
Euro (1.1828) saw a sharp drop from the 13 days moving average line and is now testing the 55 weeks moving average. It could see a bit of a pause here and see some upward correction towards 1.187-1.188. However, as the Dollar Index tests levels near 94-95 next week, Euro could test levels near 1.16-1.15.
Dollar Yen (110.25), as we predicted yesterday, rose to a high near 110.46. It could rise up even further to test resistance on daily line chart near 111. However, after that, it should turn bearish for the medium term.
Euro Yen (130.38) as we mentioned yesterday, did find resistance at the 13 days MA and dipped from there. However, it could see a rise towards 131 if the Euro rises to 1.187 and Dollar Yen stays near 110.5.
Pound (1.3498): Against our expectation, the rise in Pound towards 1.37 didn’t take place as Dollar strength took Pound below 1.35. However, there is support on 3 day candles near current levels, which could lead to a pause in its downtrend in the near term.
Dollar Rupee (68.075): Watch Resistance at 68.12-25 today. If it breaks, then 68.79-86 will be on the cards. If it holds, we can see a 50-100 paise correction.
INTEREST RATES
US Retail Sales grew 0.3% in April and the March growth figures were revised upward from 0.6% to 0.8%. Sentiment around US economic growth has received a boost by these numbers, with the 2nd quarter of 2018 expected to see higher consumption as compared to the mild consumption figures in the 1st quarter. This data release (as we had anticipated yesterday), has turned out to be the trigger which has made the US 10 Year yield breach the 3% level decisively (high near 3.09%). We can now expect US yields to move towards their medium term targets, which are as below:
3.2%-3.3% (10 Year), 3.4%-3.5% (30 Year), 3.15% (5 Year) and 2.75% (2 Year)
As the expected rate hike in the June Fed meeting starts getting factored later this month, the rally in yields could continue till the above mentioned targets are reached. 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 (3.06%), 30 Yr (3.19%), 5 Yr (2.91%), 2 Yr (2.57%): The 30 year yield and 5 year yield are near their resistance levels on the short term chart. Last time they tested these resistances, they had come off from there. However, this time we expect them to breach these levels. Let’s wait and watch.
The German 10 Year – US 10 Year yield spread (-2.41) is getting some interim resistance from 21 moving average on medium term chart. However, as we predicted yesterday, it could keep moving up towards -2.3% in this month. German 10 year yield (0.65%) has gone up further after having risen from support near 0.5% on short term chart yesterday. It might now target resistance near 0.9% in the medium term.
We have been saying that: 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.
