The danger of lurking Bears that we mentioned yesterday was not unfounded as many markets fell. However, we have to see whether they take the upper hand in the next few days, as yesterday’s Fed Minutes could have calmed nerves a bit.
For instance, although the Dow (24886.81, +52.40, +0.21%) dipped to a low of 24667 in early trade, it managed to close higher as the Fed Minutes lowered the chances of 3 rate hikes in the rest of the year. Technically, the Dow needs to breaks it’s immediate range of 24600-25100 to pick up a direction.
Ignoring the rise in the Dow, the Nikkei (22510, -0.79%) is trading further lower today after breaking below the trendline support at 23000 yesterday. The Dax (12975.36, -194.56) too has dipped below expected support at 13000. Today will be crucial to see if there is follow-through selling from here or not.
As feared, the Nifty (10430.35, -106.35, -1.01%) has fallen below 10440. Look for a near-term test of important Support at 10250, below which, the next Support will be 10100.
Also, contrary to expectation of a further rise, the Shanghai (3168.96, -1.41%) had fallen yesterday and could become bearish in case of break below 3150.
As expected, Brent (79.55) and WTI (71.66) look like they can test 78 and 71 respectively in the near term. Thereafter, we have to see if they will stage a fresh rally, or whether prospects of increased OPEC supply will drive prices lower.
Although the Brent-WTI Spread (7.89) has moved up since yesterday, it has a strong Resistance at 8.00 which push it down again. That can help Crude prices cool off a bit.
In line with expectations, Gold (1294.26) has moved up a bit since yesterday, as it is strong Support near 1285 .A small rally to 1310 is well possible.
Copper (3.073) also behaved exactly as expected yesterday. Overall, it appears ranged between 3.05-15 for a few more days. The longer term outlook is unclear as both strength and weakness seem equally likely.
The release of US Fed minutes seems to have had opposite effects on Dollar strength and US yields (see Interest Rates below). While a stronger indication of a rate hike in June imparted strength to the Dollar, the Fed’s apparent tolerance for inflation above 2% pushed yields down.
Dollar index (93.908), as per our expectation, re-tested levels near 94 yesterday by seeing a high of 94.19. While a correction towards 93.6-93.7 (support on daily candles) looks likely now, we would have to see if the correction could go deeper till the 13 day MA near 93.3. It looks like the upside target near 95 could be tested sometime next week or max in the week after that. We have been saying that the upside is likely to be capped till 95. The 89 weeks MA near 95.65 is a possible extension level which should produce a dip, if tested.
Euro (1.1710) dipped below 1.17 yesterday, seeing a low of 1.1676. Corresponding to the Dollar Index’s possible dip towards 93.6-93.7, Euro could rise to 1.175. A more pronounced upward correction would take it to 1.18 (13 days MA) once again. A test of 95 by Dollar Index in the next 1-2 weeks could imply Euro testing 1.155. The 89 weeks MA for the Euro which could produce a bounce is near 1.145.
Dollar Yen (109.64): Against our expectation, Dollar Yen broke support on daily candles near 110.5 yesterday as Trump’s proposal to impose tariffs on imported cars seemed to bring back uncertainty and volatility into the markets. The Yen, often considered as a safe haven, has in turn strengthened. We are not sure if this signals the beginning of the medium term bearish turn (which we have been mentioning in our past briefings). There might still be a bounce back from levels near 109 (horizontal support on daily candles). In that case, the long term resistance on weekly candles near 112 might still be tested in the weeks to come.
Euro Yen (128.33): Against our expectation of ranging movement for Euro Yen, it has seen a break of support near 129.5 as the Dollar Yen and Euro both turned extremely bearish yesterday. There might be some horizontal support near 128 (seen on weekly line chart), which could still produce a bounce. A decisive break of 128 would however make it bearish towards 126 (support on 3 day candles).
Pound (1.3366): As per our expectation, Pound did move down towards channel support on daily candles but also broke it to see a low of 1.3305. It is currently trading slightly higher close to the earlier support. It could turn more bearish in the next 1-2 weeks towards horizontal support near 1.31 on 3 day candles.
Dollar Rupee (68.425) : If people hit Stop Losses now, we may see 69.00 by end of this month, or even by end of this week.
The minutes of FOMC’s May meeting revealed that FOMC members might just be comfortable with inflation staying slightly above their long term target of 2%. This suggested that the pace of rate hikes might not be as quick as markets have been expecting, thereby leading analyst to infer the minutes as being dovish. This has unexpectedly led to US yields dropping.
US 10 Yr Yield (2.98%), 30 Yr (3.15%), 5 Yr (2.81%), 2 Yr (2.52%):
The 10 year, 5 year and 30 year yields have all fallen to test respective supports on short term and medium term chart. We can expect this to be a temporary dip. We could now see a rise in yields in the sessions ahead.