Market Morning Briefing: Euro-Yen Is Testing Resistance Near 137 On The Daily Candles

STOCKS

Almost all global stocks are in a corrective mode and have fallen sharply in the last few sessions. It would be important to watch price action near current levels to decide the further course of direction.

Dow (25520.96, -2.54%) has possibly seen the sharpest corrective fall last week since the rally that started from levels near 15500 in Feb’16. With this there could be some possibility of some more fall towards 25000-24500 levels before again resuming the uptrend. Near term looks bearish just now within the broad long term up trend. .

Dax (12785.16, -1.68%) is also trading lower and could test support near 12700 which my hold in the coming sessions and possibly initiate a bounce back towards 13000. A break below 12700 could turn bearish for the medium term forcing us to project levels near 12600-12400. Watch price action near current levels.

Nikkei (22728.83,-2.34%) opened with a gap down today and is almost trading near immediate support levels at 22700. A break below this levels, if seen and sustained only can indicate further bearishness indicating levels near 22600-22400 in the medium term. Else a bounce back towards 23000 or higher is possible. Watch price action near current levels.

Shanghai (3443.11, -0.55%) has already tested 3390 on the downside last week and may try to attempt a rise back towards 3510 in the near term. Else a sideways consolidation within 3390-3500 is possible in the near term.

Nifty (10760.60, -2.33%) and Sensex (35066.75, -2.34%) have initiated a sharp fall and could test immediate support near 10550 and 34000 respectively as visible on the 3-day candle charts. Thereafter, a short bounce is possible. Near term looks bearish.

COMMODITIES

Brent (67.75) and WTI (64.71) have come off again contrary to our expectation of a small rise. Brent is likely to move down in the near term towards 66-65 levels while WTI is holding above 64. There could be some scope of testing 64.00-63.75 in the near term.

Gold (1330.83) indeed moved up to test 1350 on the upside as expected, but faced sharp rejection from there. 1320 is an interim support just below current levels. If that holds, price may trade within 1350-1320 for sometime; else it could re-test lower levels of 1315-1310 in the medium term. For now our preference is a bounce from levels near 1320.

Copper (3.1840) is testing immediate support near 3.1750. A bounce from here could take it back to 3.25. The 3.25-3.1750 region may continue for a few more sessions followed by a break on either side of the range. For now, the price could remain range-bound.

FOREX

Support on weekly candles near 88.5 has held well for the Dollar Index (89.155) which is now seeing some strengthening. We could see the index ranging between 89 to 90 this week. It would be interesting to see if earlier support near 90 on the 3 day candles provides some resistance to the index in the near term. The Dollar might finally be responding to rising US yields, which are at new record highs (see Interest Rates below).

A near term correction towards 1.235 might be in store for the Euro (1.2461) in this week, post which earlier resistance near 1.23 on the weekly candles might provide some support

Dollar-Yen (109.93) finally seems to be responding to the rising yield spread between US and Japan bonds, as the Bank of Japan’s attempt to not let bond yields rise seems to be coming off. On the daily line chart, Dollar Yen has moved past the 13 days moving average line which was providing some resistance till now. It could now attempt to move towards 111 this week as the Dollar Index moves towards 90.

Euro-Yen (136.97) is testing resistance near 137 on the daily candles. It saw a high of 137.5 on Friday, which makes us believe that it might just attempt to move beyond this resistance to test resistance on the daily line chart and on the weekly candles near 138, post which it should dip.

Pound (1.4121) tested resistance near 1.425-1.43 on the 3 day candles and the daily line chart last week. It is now dipping. The 13 days and 21 days moving average lines on the daily line chart might provide the Pound some support in the next few sessions by keeping it above 1.40.

Dollar-Rupee (64.17) – Today is likely to be quiet, possibly tomorrow also. Look for rise past 64.20 if and while Support at 63.90-80 holds.

INTEREST RATES

US long term yields rose further on Friday as the NFP employment data and wage growth data both reflected higher employment and increasing wages. Record wage growth in 2017 is fuelling inflation expectations and the possibility of 3 (some say even 4) rate hikes by the Fed is extremely high.

US 10 Yr (2.86%), 30 Yr (3.1088%), 5 Yr (2.5934%) & 2 Yr (2.1494%) – As predicted on Friday, the shorter term yields haven’t seen a major rise (5 year has risen around 2 basis points while the 2 year yield has dropped around 2 basis points). Both are very near to respective long term resistances near 2.6% (might just extend upto 2.8%) and 2.2% respectively (these resistances are shown on long term charts in our January Treasury report – available on request). The 10 year and 30 year yields have however risen around 7-8 basis points each. We however expect some consolidation from these elevated levels soon as investors will start buying bonds in the search for yields, thereby increasing bond prices and decreasing yields.

Yield curve steepening is finally underway as the US 10 Yr-5Yr (0.27%) has gone much above 0.2% (seen as support on short term charts) and US 30 Yr – 10 Yr (0.2488%) has risen past 0.24% (seen as support on long term charts).

Japanese 10 Year Yield (0.085%) has successfully been brought down below 0.1% by the Bank of Japan and we can expect it to be kept below 0.09% in the near term.

German 10 Year yield (0.767 %) is testing resistance near 0.77% on the medium term chart and might see some dip as elevated yields attract investors away from falling stock markets.