STOCKS
Asians are trading in green while the other major indices like the Dow and DAX have closed on a mixed note yesterday. Dow can consolidate ahead of the Fed meeting. DAX has to surpass its resistance to gain strength. Nikkei and Shanghai looks bullish in the near term. Sensex and Nifty are bearish and can fall further.
Dow (27221.35, +28.90, +0.11%) remains stable within the expected 27000-27350 range. As mentioned yesterday, Dow has to breach 27500 decisively to become bullish again. While below 27500, we expect it to decline below 27000 and target 26600 and even lower levels int he coming weeks.
DAX (12417.47, -2.43, -0.02%) failed to sustain the break above 12450 yesterday. A decisive close above 12450 is needed to turn the outlook bullish for a rise to 12600. While below 12450, a fall to 12200-12100 cannot be ruled out.
Nikkei (21748.92, +132.12, +0.61%) has bounced above 21600 again thereby negating the fall to 21400-21250 that we had mentioned yesterday. The index seems to be gaining strength to breach 21750 and rise to 22000 and 22200 in the coming days.
Shanghai (2956.46, +15.45, +0.53%) is breaking above 2950 and it will have to be seen if it can sustain higher. Support is at 2930. While above this support, the outlook is bullish for a rise to 3000 in the near term.
Nifty (11189.20, -95.10, -0.84%) and Sensex (37686.37, -196.42, -0.52%) have declined below their key support levels of 11200 and 37700 thereby reducing the chances of a bounce-back move mentioned yesterday. The outlook is bearish. Nifty can fall to 11100-11000 while it trades below 11300. Sensex can test 37500 and 37000 on the downside while it remains below 38100.
COMMODITIES
Markets await the FOMC meeting due tomorrow to get some cue on the future monetary easing by the FED while expectations of a 25-bps cut are fully priced in. Commodities have risen and could see a temporary rise ahead of the FOMC policy statement tomorrow.
Brent (64) and Nymex WTI (57.18) have risen in line with our expectation. A rise towards 66 and 60 is possible within the current move before the prices fall from there. Very near term looks bullish for Crude prices.
Gold (1436.30) has risen from levels near 1420. Immediate trade is likely to be seen within 1420-1440 which can extend towards 1460 in the near term. On the downside, only a break below 1420, if seen may trigger a fall to 1400.
Silver (16.46) is trading in the green and may attempt a rise to 16.60/80 before coming off towards 16.20 or lower.
Copper (2.7235) rose back contrary to our expectation of a fall towards 2.68/66. This rise could be short-lived as Copper could face some rejection near 2.74 which could push back prices towards 2.70 or lower again in the medium term.
FOREX
While US Dollar rallies ahead of the FOMC tomorrow, Pound plunged sharply on fears of a hard Brexit by 31st October. Dollar-Yen and Euro Yen could test resistances on the upside before coming off from there while Euro could test 1.11 on the downside.
Dollar Index (98.12) has risen sharply breaking above 98 and could head towards crucial resistance near 98.50-99.00 from where a dip is possible. While the US Dollar trades strong, we may see a short dip in the other major and EM currencies.
Euro (1.1142) is surprisingly holding well above 1.11. A rise in Dollar Index towards 99 could take Euro down to re-test 1.11 in the near term.
Dollar-Yen (108.77) has taken support from 108.42 and while that holds, Dollar Yen could test 109 on the upside. We would wait to watch price action near 109 to decide on further direction from there.
Euro-Yen (121.19) is trading higher but could test immediate trend resistance near 121.50 which if holds could take the pair down towards 120 again in the coming sessions.
Aussie (0.6906) is stable near yesterday’s levels. As mentioned yesterday, there is support near 0.69 and lower near 0.68 which could be tested in the near term. A bounce from 0.68 looks more probable.
Pound (1.2175) has plunged as PM Boris Johnson repeated his pledge this week to renegotiate the withdrawal agreement and promised to take Britain out of the EU on 31st Oct with or without a deal. The new UK foreign secretary Raab said if EU leaders continue to be ‘stubborn’ in their approach, then no-deal Brexit is a real possibility. Raab has claimed Britain will be in a better position to negotiate a ‘good deal’ with the EU in case of a no-deal Brexit before 31st October. If the fall in Pound continues, it may test 1.20 on the downside.
USDCNY (6.8874) is also up slightly and could rise towards 6.90 before coming off from there in the longer run.
USDINR (68.74) declined below 68.90 to close at 69.73/74 yesterday but the rally in the US Dollar could possibly produce a bounce in the USDINR from current levels. While we could see some trade between 69.0-68.75, the sentiment is bearish for Dollar-Rupee in the longer term.
INTEREST RATES
The US Treasury yields remain stable as the market waits for the outcome of the US Federal Reserve meeting tomorrow. A 25bps rate cut is factored in the prices. As mentioned yesterday, any cue on the pace of future rate hikes will be the key to set the tone of the market going forward.
The 2Yr (1.85%), 5Yr (1.85%), 10Yr (2.06%) and 30Yr (2.59%) Treasury yields remained stable ahead US Federal Reserve’s two day meeting that begins today. We retain our bullish view. The 2Yr and 5Yr can rise to 1.93%-1.95% while they remain above their support at 1.80%. The 10Yr can rise to 2.20% on a strong break above 2.10%.
The German yields have dipped across tenors. The 2Yr (-0.78%) was down 3 bps. The 5Yr (-0.69%) and 10Yr (-0.39%) were down 2 bps each while the 30Yr (0.19%) was down 1 bps. The 10Yr and 30Yr have dipped below their respective support levels of -0.40% and 0.20%. Inability to bounce from current levels can drag the yields further lower to -0.50% (10Yr) and 0.10% (30Yr) in the coming weeks.
The 10Yr GoI (6.4119%) had declined below 6.50% thereby reducing the chances of a rise to 6.60%-6.65% that we had mentioned yesterday. Support is at 6.40%. While it holds a bounce to 6.50% is possible. But a break below 6.40% can drag it to 6.30%.
