STOCKS
Strong sell-off in equities over the last couple of days. Weak US manufacturing data release on Tuesday and the news on levying fresh tariffs on the European Union imports by the US have reignited the fear of recession and slow-down. This has triggered a sharp fall in the equities all around over the last couple of days. The global equities now look vulnerable for further fall.
The Dow (26078.62, -494.42, -1.86%) has tumbled breaking below the key 26500-26400 support zone. It is now in danger of testing 25500 while it remains below 26500.
The resistance at 12500 has held very well and the DAX (11,925.25, -338.58, -2.76%) has declined sharply over the last couple of days. A fall to 11800 and even 11600 looks possible now in the coming days.
Nikkei (21337.94, -440.67, -2.02%) has declined below the key support level of 21500 which we had expected to hold. The chance of seeing 22500 on the upside has been reduced now. A test of 21000 looks likely now while it remains below 21500.
Sensex (38305.41, -361.92, -0.94%) and Nifty (11359.90, -114.55, -1%) have declined breaking their range on the downside below 38500 and 11400 respectively. The outlook is now bearish. Sensex can fall to 38000-37750 and Nifty can test 11200-11100 after which a fresh rally is possible.
The Chinese markets remain closed for the rest of the week.
COMMODITIES
Weakness in the Dollar Index from levels near 99.67 seen in the first session of the month is aiding the bounce in commodities. Manufacturing data yesterday showed a contraction in output in US and Europe suggesting a possible weakness in demand of metals. This led to weakness in commodities yesterday but a fair recovery has been seen after the fall in the Dollar Index. Crude oil trades low.
Gold (1506.80) bounced from levels below 1480 seen on Tuesday, contrary to our expectation of falling towards 1450-1400 mentioned on Tuesday. While Dollar Index remains below 99.70-100, Gold could attempt a re-test of 1520/30 in the coming sessions. However, a fall towards 1450/60 is not negated just now.
Silver (17.66) has also bounced back on weakness in Dollar. Immediate resistance is seen near 18 and while that holds, we may expect a fall back towards 17 in the near term. While above 17, there could be some scope of ranged movement within 17-18 region.
Copper (2.5770) too bounced back sharply from 2.5250. Note that 2.50-2.4760 region is an important near term support zone and Copper could attempt a test of lower supports while below 2.6250.
Brent (57.77) has fallen as expected but has broken below our mentioned support at 58. Note important support levels at 57 and further down at 56 which is likely to produce a bounce in prices soon. Unless the price breaks below 56, we would remain fairly bullish on Brent Crude for the medium term towards 60. Very near term could see a fall towards 57 or even 56.
WTI (52.88) looks weak just now. Support near 52 is likely to hold and produce a bounce. Lower support is visible near 50.50. We do not expect a sharp fall below 50.50 just now. A bounce could be on the cards for the next week.
FOREX
Dollar index has come-off sharply and can dip further in the near-term before reversing higher again. Euro can move up in the near term. Dollar-Yen has a crucial support which has to hold to avoid further fall. Aussie and Pound can witness a corrective rally within their overall downtrend. Chinese Yuan remains stable in the off-shore market as the Chinese markets are closed for the rest of the week. Dollar-Rupee has risen above 71 but the upside is likely to be capped and the pair can come down below 71 again.
Dollar Index (99.01) has come-off sharply from Tuesday’s high of 99.67 and can now test 98.75-98.50 in the near term. The expected rise to 100-100.10 seems to be getting delayed.
Euro (1.0961) has bounced well above 1.09 and has reduced the chances of seeing 1.0840-1.0830 for now. A test of 1.1000-1.1020 looks likely in the near term. Key supports are in the 1.0955-1.0945 region and then in the 1.0930-1.0925 region.
Dollar-Yen (107.18) rose to test 108.50 on Tuesday but has tumbled thereafter. 106.94 is an important level to watch now which needs to hold to avoid further fall to 106.50 and move the pair higher again to 107.75 and 108. Intermediate resistance is at 107.40.
The EUR-JPY (117.39) cross has dipped below 117.50 and can test 117.10-117. A break below117 will increase the possibility of revisiting 116 and even lower levels going forward. It will have to be seen if the Cross can sustain above 117 or not.
Aussie (0.6748) tumbled much beyond our expected level of 0.6700. It made a low of 0.6671 and has bounced from there. While above 0.6690, a corrective rally to 0.6740 is possible in the near term.
As expected, Pound (1.2290) fell to test 1.22 and has bounced from there. The outlook is bearish. But a corrective rally to 1.2350-1.2375 is possible before we see a fresh fall. As we have been mentioning for some time Pound can revisit 1.20 levels while it remains below 1.24.
The Chinese markets are closed for the rest of the week and the USDCNH (7.1452) remains stable above 7.14 in the off-shore market with the broader view being bullish to test 7.16-7.17 on the upside.
Dollar-Rupee (71.0850) has risen above 71. Though it has room to move further higher, the upside is likely to be capped at 71.18, 71.25 or 71.32. We expect the Dollar-Rupee to reverse lower again below 71 thereafter.
INTEREST RATES
The fear of recession and slow-down are emanating again after the weak US manufacturing data release on Tuesday and on news that the US is planning to levy import tariffs on European Union products. As a result the Treasury yields have tumbled across tenors and remain bearish to fall further. The German yields remain stable at the near-term but have inched higher at the far-end. However, the broader picture remains weak for the German yields as well. The 10Yr GoI has declined below 6.70% and can dip further in the near term.
The US 2Yr (1.47%), 5Yr (1.43%), 10Yr (1.59%) and 30Yr (2.07%) have tumbled across tenors over the last couple of days. The 10Yr has come closer to our target of 1.57% and the 30Yr is approaching 2% in line with our expectation. The 10Yr can revisit 1.45% on the downside while it remains below 1.65%. The 30Yr can move below 2% to test 1.97%-1.955% on the downside.
The German yields 2Yr (-0.78%), 5Yr (-0.77%) remain stable while the yields at the far-end, 10Yr (-0.54%) and 30Yr (-0.04%) have moved up. The 30Yr has resistance at current levels and is likely to reverse lower and keep the bearish view intact to test -0.20%.
The 10Yr GoI (6.6642%) broke below 6.70% as expected and is now bearish to test 6.64%. The downmove can extend even up to 6.60% while it remains below 6.70%.
