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STOCKS

Profit-taking action in most indices. Not very pronounced at the moment, but can gather more steam while important Resistances hold.

Although the Dow (24575.62, +171.14, +0.70%) recovered a bit yesterday after falling a goodish bit the day before, it has good Resistance near 25000 over this week and the next. Could trigger a profit-taking dip towards 24000.

The DAX (11071.54, -18.57, -0.17%), Nikkei (20506.81, -86.91, -0.42%) and Shanghai (2582, +0.07%) also have important Resistances overhead at 11300, 21000 and 2600-60 region respectively. Unless these are broken conclusively, they can push the markets down a bit over the next few weeks before fresh buying emerges at lower levels later on.

Both the Sensex (33108.47, -336.17, -0.92%) and Nifty (10831.50, -91.25, -0.84%) saw a decent dip yesterday, to test near term Supports on the Daily Candles. They might see a small bounce today, but as mentioned, It might be prudent to budget for a corrective dip towards 34000 and 10500 on the Sensex and Nifty respectively in the medium term.

COMMODITIES

The API reported an inventory build of 6.55 mln barrels for the week ending 18th Jan’19 against expectations of a small draw of 42,000 barrels. The US EIA report on crude inventories is due today. Crude prices could trade lower during the day.

Brent (60.94) and WTI (52.41) seem to be holding well below the immediate daily candle resistance near 64 and 56 respectively. While the respective resistances hold, a fall towards 58 and 50 is possible.

Gold (1282.60), Silver (15.36) and Copper (2.6585) are trading lower today.
Copper could possibly hold above 2.65 and bounce back towards 2.70/75 levels in the near term. The price is trading in between the broad 2.55-2.75 region. Failure to hold above 2.65 could pull it to 2.60/55 levels.

Gold, if breaks below 1280, could test 1270-1260 on the downside. 1300-1290 may hold for the near term keeping the price low. A possible weakness in Dollar (refer to Forex section below) could boost a rise in Gold back towards 1290 but we may not expect a rise above 1300 just now. Silver may hold above 15.25.

FOREX

Some weakness in Dollar is expected while Pound, Euro, Yen, Chinese Yuan may see some immediate strength against the US Dollar. ECB Meeting is due today.

Dollar Index (96.10) has dipped a bit while Euro (1.1385) has moved up and is trading above our mentioned support at 1.1350. Euro could trade in the 1.15-1.1350 region for another 1-2 weeks before a sharp move is seen on either side of the range. On the Dollar Index chart, there is immediate resistance near 96.50 which is holding for now. If it continues to hold in the next few session, we could see some weakness in the Dollar Index towards 95.50 or lower. Also the 13-Week Ma is currently holding as resistance on the Dollar Index line chart.

Dollar Yen (109.56) is almost stable. The trend support seems to be holding well as seen on the 3-day line chart. Slow and gradual rise to 110.5-111.0 levels is a possibility in the medium term. Watch Nikkei, as the resistance near 20900-21000 if holds (Refer to Stocks section above and see weekly candles) could bring down Nikkei just now indicating some Yen strength in the very near term.

Pound (1.3074) has surprised by rising above 1.30 but could soon face rejection from 1.31 resistances as seen on the 3-day line chart. A fall from 1.31 could pull it back towards 1.29-1.28 levels. Only on a sustained break above 1.31 would we look at bullish possibilities of rising towards 1.33/34.

Aussie (0.7127) daily line chart shows a slight bounce from the 21-Day MA and could see some bounce just now to 0.7150/60. While above 0.7050-0.7100, there is scope for rising to 0.73 in the medium term.

USD-CNY (6.7850) has been trading lower for the last couple of sessions and could test support at 6.75 before bouncing back from there towards 6.80. Immediate view is bearish towards 6.75, followed by a bounce thereafter.

Dollar Rupee (71.3450) rose from 71.14 to 71.36 yesterday and closed near the day’s high yesterday. Immediate trade is seen in the 71.10-71.40 region while we may expect an upside extension to 71.60. We could possibly see a re-test of 71.15 today. Break below 71.10 or above 71.40/60 would be crucial.

INTEREST RATES

The US 30yr (3.06%, down from 3.07%) has good Resistance in the 3.08-3.10% region and has chances of dipping towards 3.00%. The 30-5 Spread (0.48%) and 30-10 Spread (0.31%) could dip down towards 0.43% and 0.28% respectively. In effect, the 5Yr (2.58%) and 10Yr (2.75%) might not dip as much as the 30Yr and the Curve may flatten a bit.

Contrary to our expectation of a dip, Japanese Yields have actually moved up by an average of 1bp across the Curve yesterday. The 10-5 Spread (0.16%) has Support near current levels and has room to move up towards 0.22% in the longer term. So, maybe we have to look at Japanese Yields a little more carefully, whether they can actually rise a bit.

The 10Yr GOI (7.5774%) rose back a little yesterday, but has remained below 7.59%. It is looking ranged between 7.55-65% in the near term.

Key Highlights

• The US Dollar started a decent recovery after testing the 1.3200 support against the Canadian Dollar.
• There is a major ascending channel formed with support at 1.3280 on the 4-hours chart of USD/CAD.
• Canada’s Retail Sales declined 0.9% in Nov 2018 (MoM), compared with the -0.6% forecast.
• The US Manufacturing PMI for Jan 2019 (Prelim) will be released today, which could decline from 53.8 to 53.5.

USDCAD Technical Analysis

After a significant decline, the US Dollar found support near the 1.3180-1.3200 area against the Canadian Dollar. The USD/CAD pair started a decent recovery and moved above the 1.3250 resistance.

Looking at the 4-hours chart, the pair gained bullish momentum above the 1.3200 and 1.3250 resistance levels. There was a break above the 23.6% Fib retracement level of the last slide from the 1.3662 high to 1.3179 low.

The pair is now approaching a significant hurdle near the 1.3400 level and the 200 simple moving average (green, 4-hours). Moreover, the 50% Fib retracement level of the last slide from the 1.3662 high to 1.3179 low is at 1.3420.

Therefore, if the pair continues to move higher, it could find sellers near 1.3400, the 200 simple moving average (green, 4-hours), and the 1.3420 level. On the downside, there is a decent support formed near 1.3300 level.

Moreover, there is a major ascending channel formed with support at 1.3280 on the same chart. In the short term, there could be a minor decline, but the pair remains well supported above 1.3280 for more gains towards 1.3400 and 1.3420.

Fundamentally, the Canadian Retail Sales report for Nov 2018 was released by the Statistics Canada. The market was looking for a 0.6% decline in sales Nov 2018, compared with the previous month.

The actual result was disappointing as the Canadian Retail Sales declined 0.9%. Additionally, the last reading was revised down from 0.3% to 0.2%. The report stated that:

Retail sales decreased 0.9% to $50.4 billion in November on lower sales at gasoline stations and motor vehicle and parts dealers. Excluding these two subsectors, retail sales increased 0.2%.

Overall, the US Dollar could continue to recover against the Canadian Dollar and there are high possibilities of more gains towards 1.3420.

Economic Releases to Watch Today

• ECB Interest Rate Decision – Forecast 0%, versus 0% previous.
• Germany’s Manufacturing PMI for Jan 2019 (Preliminary) – Forecast 51.3, versus 51.5 previous.
• Germany’s Services PMI for Jan 2019 (Preliminary) – Forecast 52.1, versus 51.8 previous.
• Euro Zone Manufacturing PMI Jan 2019 (Preliminary) – Forecast 51.4, versus 51.4 previous.
• Euro Zone Services PMI for Jan 2019 (Preliminary) – Forecast 51.5, versus 51.2 previous.
• US Manufacturing PMI for Jan 2019 (Preliminary) – Forecast 53.5, versus 53.8 previous.
• US Services PMI for Jan 2019 (Preliminary) – Forecast 54.1, versus 54.4 previous.
• US Initial Jobless Claims – Forecast 220K, versus 213K previous.

EURUSD backs off lower prices with eyes on 1.1450 zone as it looks to strengthen further. Support comes in at the 1.1350 where a violation will aim at the 1.1300 level. A break below here will target the 1.1250 level. Further down, support lies at the 1.1200. On the upside, resistance resides at 1.1400 level with a break through there opening the door for further upside towards the 1.1450 level. Further up, resistance comes in at the 1.1500 level where a violation will expose the 1.1550 level. All in all, EURUSD continues to threaten further downside pressure.

Wall Street edges higher after strong earnings

US indices saw whippy trading yesterday before a last-minute spurt saw them close in the black. Better results from a few index heavyweights helped sentiment. The ECB meets today and could focus on the downside risks to the economy. Australian shares rally after better-than-expected jobs data.

US30USD Daily Chart

The US30 index snapped a two-day losing streak yesterday after swinging from negative to positive in late trading

The 55-day moving average at 24,324 appears to be lending support for now after the index failed to close below it for the past two days

The January flash reading of manufacturing PMI is due today and seen sliding to 53.5 from 53.8, according to the latest poll.

DE30EUR Daily Chart

The Germany30 index advanced for the first time in three days yesterday as the market awaits developments on Brexit

The 55-day moving average at 11,061 remains in focus, while Fibonacci support at 11,029, which is 23.6% retracement of the December-January rally, held yesterday

ECB is expected to keep rates steady today, the first meeting after it ceased its bond-buying program. EU data has been uninspiring for the past few months, and this could drive expectations.

AU200AUD Daily Chart

The Australia200 index climbs today after data showed the economy added more jobs than expected in December

The index is pivoting around the 100-day moving average at 5,851. The 200-day moving average at 6,005 could be the next resistance point

Australia added 21,600 jobs in December, more than expected, 24,600 part-time with a loss of 3,000 full-time. The unemployment rate dipped to 5.0% from 5.1%.

The US dollar is weaker against major pairs on Wednesday. The prolonged government shutdown and lack of clarity on trade talks put downward pressure on the greenback while investors sought higher yields as risk appetite was back in action. The US dollar and the Japanese Yen fell as a result of the risk on factor. The European Central Bank (ECB) will publish its main refinancing rate at 7:45 am EST, with no changes expected, the major event of the day will be the press conference by President Mario Draghi at 8:30 am EST, where investors can get some insights into how much has the events of the month and half have changed the view on European monetary policy.

• ECB to maintain monetary policy
• European PMIs to keep supporting currency
• Davos has not brought US-China trade closer

Euro Rises Ahead of ECB Despite Dovish Outlook

The EUR/USD rose on Wednesday as the government shutdown continues, putting pressure on the greenback. The news out of Europe have been mixed with weaker growth and inflation, but on the bright side there has been some progress on the Brexit talks. The single currency is trading at 1.1383 ahead of Mario Draghi’s press conference. The challenge for the central banker will be on what to say, and more importantly given the miscommunication in the past, how he delivers.

The ECB was expected to hike rates in the fall of 2019, but that could now be an optimistic forecast. With no updated projections the only outlook would be the one Draghi gives the market so he better be careful to avoid spooking already sensible investors.

European growth remains elusive, and harder to achieve in a protectionist environment. The statement out of Davos have said as much, but real change will not happen abroad but when those leaders return home to do the hard work. Draghi will not enjoy the spotlight on Thursday as he has little good news for the market, and will work on how to best deliver the bad news.

Sterling surged 0.86 percent as Labour could be onboard with passing legislation to delay Brexit. Extending the fast approaching March 29 deadline and minimizing the probability of a no-deal exit have been positive for the currency. The pound will continue to be sensitive to developments in parliament as Theresa May’s government struggles to put together a proposal that will satisfy members of parliament as well as be acceptable by the European Union.

OIL – Iran sanction loophole offset by Venezuela sanctions

Crude prices fell on Wednesday as global growth expectations continue to decline with no signs of a China-US tariff reduction. President Donald Trump mentioned that trade talks are going well, but then said that if a deal is not reached tariffs could be even higher. Global energy demand has been soft as uncertainty remains in the minds of investors.

President Trump officially recognized the leader of the Venezuelan opposition as the interim president. Economic and diplomatic pressure will be applied if Juan Guaido is not recognized. President Maduro has retaliated by giving US diplomats in Venezuela 72 hours to exit the country.

Sanctions on oil producing countries increase the price of crude, as the market has seen after the sanctions on Iran. Earlier in the session part of the weakness in oil prices was that the EU was seeking a way to circumvent US sanctions. Venezuela exports to the United States have declined American refiners will be impacted as they scramble to find suitable replacements in the short term, driving prices of heavier grades higher.

GOLD – Yellow metal flat as investors seek riskier assets

Gold fell slightly by 0.1 percent on Wednesday. The yellow metal was sold as investors flocked to equities. Dollar weakness and No-deal Brexit headlines appreciated gold, but the move did not last as Labour threw its support of an extension of Article 50.

Geopolitical risk events have kept gold in a tight but volatile range. Today investors favoured yield over safety as equity markets shrugged off global growth slowdown fears, the sentiment is subject to change as the ECB publishes its monetary policy statement and President Draghi addresses the financial press.

STOCKS- Blue chips in charge as markets shrug off global growth downgrade

Strong earnings from IBM and Procter & Gamble guided US stock markets higher. Equities followed blue chip performance despite a gloomy growth outlook as the US and China remain far apart in their upcoming trade talks. The partial shutdown of the US government continues and the White House Economic adviser said on Wednesday that it could bring down the quarterly growth to zero.

The European Central Bank (ECB) is not expected to make any changes to its monetary policy on Thursday, but all eyes will be on President Mario Draghi. A dovish outlook could come up during the press conference and spark a sell off if the view is more pessimistic than usual.

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Equity markets traded lower in the morning but changed its direction when the US markets started to trade. Thanks to Davos.

Stocks

• The S&P 500 Index reversed its losses and jumped 0.3 percent as of 15:36 London time,
• The Stoxx Europe 600 Index increased 0.5 percent.
• The U.K.’s FTSE 100 Index was under the influence of Brexit and shed 0.4 percent.
• Germany’s DAX Index followed US indices and jumped 0.4 percent.
• The MSCI Emerging Market Index didn’t show much action so changed.

Currencies

• The Dollar Spot Index fell retraced from its high and lost 0.1 percent, the first drop in seven days.
• The euro was little-stayed lacklustre and unchanged at $1.1360.
• The British pound did its Brexit thing and jumped 0.7 percent to $1.3044, the third straight gain.
• The Japanese yen dropped 0.5 percent to 109.90 per dollar, breaking its three days run.

Bonds

• The yield on 10-year Treasuries jumped three basis points to 2.77 percent.
• Germany’s 10-year yield dropped 0.24 percent, change of trend, the first decline in three days.
• Britain’s 10-year yield jumped than two basis points to 1.35 percent.

Commodities

• West Texas Intermediate crude continued its downward trend and dropped to $52.86 a barrel.
• Gold experienced a little move and dropped  0.4 percent to $1,279 an ounce.

Cable is comfortable above 1.30 barrier that was eventually taken out today after last week’s double rejection and subsequent corrective dip. Improved sentiment on announced Brexit amendments (which still need to be passed) inflated pound today for advance through psychological 1.30 resistance. Bullish setup of daily techs adds to positive near-term outlook as bulls approach next strong barrier at 1.3082 (200SMA / Fibo 76.4% 1.3297/1.2397 fall, where rally is expected to face headwinds and may enter consolidation before continuing. Daily slow stochastic is cracking the boundary of overbought zone and supports scenario. Broken Fibo 61.8% barrier (1.2953) should ideally contain corrective dips. Today’s close above 1.30 barrier would generate bullish signal, while close above 200SMA is needed to confirm and expose target at 1.3174 (7 Nov high).

Res: 1.3082; 1.3149; 1.3174; 1.3257
Sup: 1.3000; 1.2953; 1.2894; 1.2866

In the World Economic Forum in Davos Switzerland, Chinese Vice President Wang Qishan said "There will be a lot of uncertainties in 2019, but China's economy will continue to achieve sustainable growth".

He added that "Speed does matter. But what really matters is the quality and efficiency of our economic development."

Wang also urged all countries to defend multilateralism and do whatever they can to ensure global imbalances do not worsen.

EU chief Brexit negotiator Michel Barnier  said today that no-deal Brexit is now the default, and "Preparing for a no-deal scenario is more important now than ever, even though I still hope that we can avoid this scenario."

He also warned that "Opposing no-deal will not stop no-deal from happening at the end of March. To stop no-deal, another majority will have to emerge." And he added, "This is the objective of the political consultations that Theresa May has started and we hope, sincerely, we hope that this process will be successful".

Meanwhile, he also pointed out there are two possible ways to leave the EU. "Number one, an orderly withdrawal based on the agreement that we have built step by step with the UK over the last 18 months." Or, "Number two, a disorderly withdrawal, leaving the EU without a deal, is a default scenario and there appears to be a majority in the House of Commons to oppose a no-deal."