STOCKS

Equities have risen as the chances for a rate cut has increased after the US Federal Reserve Chairman hinted for the same in his testimony yesterday. However, the major indices like the Dow, Nikkei, Shanghai have key resistances ahead which needs to be broken to see further rally. While these resistances hold, the indices can continue to consolidate for some more time within their overall uptrend.

Dow (26860.20, +76.71, +0.29%) surged to an intraday high of 26983.45 and has come-off from there. As we have mentioning for some time the Dow can consolidate between 26500 and 27000 for some time before the overall uptrend resumes targeting 27200 and 27500. A strong break above 27000 will trigger the fresh rally.

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DAX (12373.41, -63.14, -0.51%) has dipped further and is heading to test the 12300-12250 support zone as expected. We expect the DAX to reverse higher from this support zone and resume its uptrend targeting 12800-13000 over the medium term.

Nikkei (21622.42, +88.94, +0.41%) is holding above 21500 and is moving higher towards 21700-21750 as expected. A strong break above 21750 can trigger a fresh rise to 22000 and 22250. Inability to breach 21750 can keep the index range bound between 21500 and 21750 for some more time.

Shanghai (2934.50, +19.20, +0.66%) continues to hover above 2900 and is not gaining strength. A narrow consolidation between 2900-2950 looks possible before the index surges to 3000.

Sensex (38557.04, -173.78, -0.45%) and Nifty (11498.90, -57.00, -0.49%) failed to sustain their intraday gains yesterday and fell sharply from their respective highs of 38854.85 and 11593.7. This reflects the inherent weakness in them and keeps the bearish view intact. Sensex test 38100-38000 on the downside. Nifty can fall to 11400-11350 on a break below the immediate support level of 11460.

COMMODITIES

Sharp fall in the US dollar has given a boost to the commodity prices. Gold, Silver and Copper have surged. Crude Oil has surged after a sharp fall in inventories. The US Crude inventories fell by 9.5 million barrels much more than the market expectation for a draw-down of 3.1 million barrels. Threat of a tropical storm in the Gulf of Mexico which could affect the production is also weighing on the oil prices. Overall commodities have room to extend the upmove in the coming days.

Gold (1422) has surged beyond our expected level of 1410. The support at 1380 has held very well and gold can now revisit 1435 and 1440 levels. A strong break above 1440 is needed for a fresh rally. While 1440 holds, gold can consolidate between 1380 and 1440 for some time.

Silver (15.25) can rise to 15.40 and 15.50 in the near term. A break above 15.50 will pave way for the next target of 15.70. But a pull-back from 15.50 can keep silver in a sideways range between 14.90 and 15.50 for some time.

Contrary to our expectation for a fall Copper (2.68) has risen back sharply above 2.65. The expected fall to 2.60-2.58 has been negated. While above 2.65 copper can consolidate between 2.65 and 2.70 for some time with a higher possibility of testing 2.73-2.75 on the upside.

Brent (67) has surged much beyond our expected level of 66. The near-term outlook remains bullish to test 67.7 and 68 on the upside in the coming sessions.

Nymex WTI (60.59) looks much stronger than Brent. WTI can test 62 and 62.5 on the upside on a strong break above 61.

FOREX

Dollar has been beaten down after the US Federal Reserve Chairman Jerome Powell hinted for a rate cut in his testimony yesterday by saying that the central bank will act as appropriate to sustain the growth. The dollar can continue to trade weak and as such the Euro, Pound, Aussie and Yen can move further higher from current levels. The broader weakness in the dollar can drag the Dollar-Rupee below 68.50 today.

Dollar Index (96.97) failed to sustain above 97.5 and has declined sharply thereby negating the chances of a rise to 98. The index has support at 96.7 which can be tested in the coming sessions. A break below it will see the fall extending to 96.5 and 96.25.

Euro (1.1264) has risen above the resistance at 1.1250. The psychological support level of 1.12 has held very well. While above 1.1250, the Euro can test 1.13 and 1.1325 in the coming days.

Dollar-Yen (107.98) has tumbled from near 109 and can fall to 107 in the coming sessions. Resistance is at 108.50 which can cap the upside in the near term.

Euro-Yen (121.68) had dipped below 121 following the fall in the Dollar-Yen. The Euro-Yen cross can dip further to 121.3 and 121 in the coming sessions.

Aussie (0.6963) has bounced from 0.6910 indeed much beyond our expected level of 0.6950. It can test 0.6980 from where a pull-back to 0.6950 or even lower levels is possible again.

As expected, Pound (1.2512) has got a breather after falling consistently over the last several days. While it sustains above the 1.2500-1.2475 support zone, a relief rally to 1.2550 and even 1.2600 is possible in the coming days.

USDCNY (6.8725) has dipped below 6.88 and can fall to 6.86-6.85 in the coming days. The 6.83-6.90 range remains intact and the pair can move down to 6.83 – the lower end of the range while it remains below 6.88 in the coming days.

Dollar-Rupee (68.57) remained stable yesterday. The pair is facing strong resistance at 68.61. The chances are high for the Dollar-Rupee to break 68.50 and fall to 68.30-68.25 today on the back of the weakness in the dollar.

INTEREST RATES

The US Federal Reserve Chairman Jerome Powell’s testimony which has increased the possibilities of a rate cut has dragged the yields sharply lower. Powell has raised concerns about the external risks continuing to weigh on the US economic Outlook and the inflation continuing to remain weak for a prolonged time than they had anticipated. The US inflation data is due today. A weak inflation number would further strengthen the case for the rate cut and drag the yields more lower.

The US Treasury yields tumbled in the near end while the far end remained stable. The 2Yr (1.81%) and the 5Yr (1.80%) were down sharply by 11 bps and 8 bps respectively. The 10Yr (2.04%) was down by 3bps while the 30Yr (2.55%) was stable. The yields can continue to move lower ahead of the next Fed meeting on July 31. The 5Yr can move down to 1.75%-1.73% while the 10Yr can dip below 2% in the coming days.

The German yields continue to move higher especially at the far end while the near end remains subdued. The 2Yr (-0.75%) was down by 2bps and the 5Yr (-0.61%) remains stable. The German yields can move further higher in the coming days. The 10Yr can test -0.25% while the 30Yr can move up to 0.35%.

The 10Yr GOI (6.5425%) has declined below the key support level of 6.55% as against our expectation for a rise to 6.65%-6.75%. A test of 6.50% and 6.45% on the downside looks likely now.

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