Sample Category Title

STOCKS

The market is testing the water in the new year and it might be good to be neither too bullish or bearish for a few days.

Contrary to the expectation yesterday, the Sensex (35891.52, -38.52) and Nifty (10792.50, -117.60) closed lower. There is a chance of Support coming in at current levels today, but if broken, the indices could fall further towards 35500 and 10700 in the near term, before producing a bounce towards 36500 and 11000 in the medium term.

Shanghai(2472) is seeing immediate support at 2450 and could ranging between 2550-2450 while that holds, but we cannot fully rule out a final fall towards 2425-2400 yet. That said, the long-term could be bullish on resolution of the US-China trade talks.

Kospi(2012) resembles Shanghai and may be further bearish towards 2000 or even 1900. The latter is a good Support for a goodish bounce in the longer term.

The Dax (10580.19, +21.23) has bounced from support at 10387 yesterday. We are unsure of movement here, whether there will be a rally towards 10900 or if it will merely move sideways between 10300-700 for some time.

Dow Jones(23346.24) saw a minor rally yesterday, and has some chances of moving up a little more towards 24000 in the near term.

COMMODITIES

Crude prices are almost stable while Gold and Silver has risen sharply to test resistances. Copper on the other hand looks bearish for the near to medium term.

Brent (54.59) and Nymex WTI (45.84) have risen slightly, attempting to rise above the immediate resistances near 56 and 48 respectively. While the long term supports at 50 and 42 holds respectively, a small rise in the near term could be possible towards 58 and 50 respectively before coming off from there.

Gold (1290.80) has risen sharply to test the immediate resistance on the daily candles. If it manages to sustain above 1290, it could head towards upper resistance zone of 1300-1320 before coming off from there. Either a dip from current levels towards 1270 or a rise towards 1300 could be the next course of movement. Watch price movement at current levels. Weekly line chart indicates bullishness towards 1350 for the longer term.

Silver (15.66) has resistance at current levels on the daily candles which if holds could produce a decent fall to 15.25-15.10 levels. Else a further rise towards 15.8 looks likely.

Copper (2.6105) has fallen sharply breaking below the 3-day and weekly supports near 2.65. Now while the price trades lower there could be some decent support at 2.60. Failure to bounce from 2.60 would make it bearish in the medium term towards 2.55/50. Watch price action near 2.60.

FOREX

Volatility triggers into the currency markets post the New Year holidays. Flash Crash seen on major currencies (AUDUSD, EURJPY, GBPUSD, USDJPY) but have recovered from there. The China Manufacturing PMI for Dec’18 came out lower at 49.7 from 50.20in Nov’18.

Dollar Index (96.53) is trading within the downward channel of 97.25-95.75 on the daily candles. A break on either side is important to determine the further course of direction. Upper resistance above 97.25 is seen at 98. The index may head higher towards 97.25 or even 98 in the near term.

Euro (1.1361) has held our expected resistance near 1.15 and has dropped from there. Immediate daily support at 1.13 could hold for now and produce a bounce back towards 1.14-1.1440 levels. Lower support is visible at 1.12 but we need to see a break below 1.13 for the Euro to move lower. For now, we may expect a bounce from 1.13.

Dollar Yen (107.06) tested 104.74 on the downside in a flash crash before recovering to current levels. 107 is an important levels from where a bounce if seen could take the pair higher towards 109-110+ again; else a fall below 107, if seen and sustains could make it vulnerable to a sharp fall towards 104.50-102.50 levels in the medium term. It is important to watch price action near 107 over today and tomorrow.

Euro-Yen (121.77) is testing medium term support on the 3-day line chart and while that holds, we could see a bounce from here in the coming sessions. Failure to bounce from 121 to higher levels could make it bearish for the longer run towards 119.

Pound (1.2547) has come off sharply contrary to our expectation of a rise from 1.27. while below 1.2750 (immediate resistance now), Pound could head lower towards 1.2350 before bouncing back from there back towards 1.25-1.27 in the longer term. Near term looks bearish while below 1.2750-1.2700.

Aussie (0.6941) has support at 0.67. While below 0.70, a fall back towards 0.68 looks likely. A break above 0.70 is needed to initiate bullishness for the medium term.

Dollar Rupee (70.18) closed higher yesterday surprising with a sharp move above 70. Near term resistance at 70.30/40 is likely to hold and push the price back towards 70 and lower. 69.20-69.00 remains intact for the medium term, while Rupee could trade in the 70.20-69.80 region in the next few sessions. NDF is trading at 69.98, indicating a possible gap down opening today near 70. Dip back to levels below 70 looks likely for the rest of the sessions this week.

INTEREST RATES

US Yields have dipped some more across the Curve. US 2Yr (2.47%, from 2.49% and 2.52%), the 5Yr (2.46%, from 2.51%), 10Y (2.62%, from 2.68%) and 30Yr (2.95%, from 3.01%) are all down a bit.

Importantly, the 5Yr (2.46%) again trades 1bp lower than the 2Yr, but has an important long-term Support at the current level, coming up from near 0.90% in 2016. We could see a bounce towards 2.60%, if this holds. This is something to watch over the next couple of days.

The 10-2Yr Spread (0.14%, down from 0.19%, 0.20%) has fallen back below 0.16%, in line with expectation.

Also as expected, the German-US 2yr Spread (-3.10%, up a bit from -3.12%) might try and rise towards -3.00% if the US Yields fall further. But there is a strong Resistance there, which could push the Spread down again, given that the German 10Yr (0.168%) could itself be headed lower towards 0.10%.

The Indian 10yr GOI (7.3546%, down from 7.422%) fell back yesterday, in line with the longer term trend which points down towards 7.10-00%.

Key Highlights

• The British Pound formed a top near 1.2815 and later declined sharply against the US Dollar.
• There was a break below a major ascending channel with support at 1.2650 on the 4-hours chart of GBP/USD.
• The US Manufacturing PMI in Dec 2018 declined from the last revised reading of 55.3 to 53.8.
• Today in the US, the ADP Employment Change figure for Dec 2018 will be released, which is forecasted to change 178K.

GBPUSD Technical Analysis

After a solid upward move, the British Pound found a strong resistance near 1.2800 against the US Dollar. The GBP/USD pair started a downside move and declined heavily below the 1.2600 support.

Looking at the 4-hours chart, the pair formed a top near the 1.2825 level and later started a sharp downside move. It broke the 1.2700 support and settled below the 100 simple moving average (red, 4-hours).

There was even a break below the 1.2600 and 1.2450 support levels. Moreover, there was a break below a major ascending channel with support at 1.2650 on the 4-hours chart of GBP/USD. A new yearly low was formed at 1.2391 and later the pair started an upside correction.

It moved above the 1.2500 resistance and the 23.6% Fib retracement level of the last decline from the 1.2814 high to 1.2391 low.

However, there are many hurdles for buyers near 1.2600, 1.2620, 100 SMA, and the 50% Fib retracement level of the last decline from the 1.2814 high to 1.2391 low. Therefore, upsides are likely to be capped near the 1.2600-1.2620 zone.

On the downside, an initial support is at 1.2520, below which the pair may continue to move down towards the 1.2500 and 1.2450 levels.

Recently in the US, the Markit Manufacturing PMI for Dec 2018 was released. The market was looking for a rise from 53.9 to 54.2.

The result was disappointing since there was a decline in the PMI to 53.8 in Dec 2018. Moreover, the last reading was revised up to 55.3, which means the net decline was a lot more.

Overall, GBP/USD and EUR/USD may correct higher in the short term, but upsides are likely to be capped.

Economic Releases to Watch Today

• US ISM Manufacturing Index for Dec 2018 – Forecast 57.9, versus 59.3 previous.
• US Initial Jobless Claims – Forecast 220K, versus 216K previous.
• US ADP Employment Change Dec 2018 – Forecast 178K, versus 179K previous.

Daily Pivots: (S1) 108.48; (P) 109.11; (R1) 109.52; More..

USD/JPY's fall accelerates to as low as 104.69 before recovering ahead of 104.62 low. For now, intraday bias remains on the downside despite the current recovery. Decisive break of 104.62 will target 100% projection of 118.65 to 104.62 from 114.54 at 100.51, which is close to 100 psychological level. On the upside, break of 109.46 minor resistance is needed to indicate short term bottoming. Otherwise, outlook will remain bearish even though the current recovery might extend.

In the bigger picture, price actions from 125.85 (2015 high) are seen as a long term corrective pattern, no change in this view. Apparently, such corrective pattern is not completed yet. Fall from 114.54 is seen as another medium term down leg, targeting 98.97/104.62 support zone. For now, we'd expect strong support from there to contain downside to bring rebound.

Yen is trading as the strongest one for today after what many described as "currency crash". Key levels in many Yen crosses were breached. or even broken. In particular, USD/JPY just hold on to 2017 low at 104.62 after hitting 104.69. AUD/JPY even breached 72.39 (2016 low) and hit lowest since 2009. When yen crosses pared back some of the losses after the spike, outlook is now clearly bearish for most of them and more downside is expected.

Staying in the currency markets, for now, Swiss Franc is the second strongest one for today, followed by Euro. But Dollar and Canada are the next strongest for the week. Australian Dollar is the worst performing one on China slowdown worry, for both the day and the week. Sterling is the second weakest for today and third weakest for the week on Brexit uncertainties.

While there is extreme volatility in the currency markets, stocks were relatively calm though. DOW again staged an impressive comeback overnight. It initially dipped to as log as 22928.59 but closed up 18.78pts or 0.08% at 23346.24. S&P 500 rose 0.13% and NASDAQ gained 0.46%. In Asia, Japan is still on holiday. China Shanghai SSE is currently flat. Hong Kong HSI is down -0.44% while Singapore Strait Times is down -0.73% only.

However, after Apple's cutting of revenue outlook DOW futures is currently down over -300 pts in Asia. It looks like US stock will be under pressure again. US treasury will be another key factor to watch ahead. 30-year yield finally closed below 3% handle at 2.982 overnight, down -0.038. 10-year yield dropped -0.025 to 2.661. More importantly, after the Apple's news, 10-year yield is now down to 2.620 in Asia. It's very close to 1-year yield at 2.616.

Currency flash crash on Apple, China and AUD/JPY squeeze

"Currency Crash" occupies a lot of headline in Asian session today after Yen spikes higher during the "thin" period of the markets while Aussie was squeezed lower. To put it into perspective, USD/JPY hit as low as 104.69 comparing to yesterday's high at 109.72. EUR/JPY hit as low as 118.62 comparing to yesterday's high at 125.85. GBP/JPY hit as low as 131.51 comparing to yesterday's high at 139.92. And most seriously, AUD/JPY hit as low as 70.27 comparing to yesterday's high at 77.34, and hit lowest since 2009.

The main fundamental trigger of the crash is believed to be Apple's cutting of its sales forecasts amid China slowdown. It's the tech giant's first cut in revenue outlook in almost two decades. CEO Time Cook said the company expects around USD 84B in Q4, sharply lower from prior estimate of USD 89B to USD 93B. Cook also warned that in a statement to investor that "while we anticipated some challenges in key emerging markets, we did not foresee the magnitude of the economic deceleration, particularly in Greater China."

The crash in Yen crosses is described by some as "flash". The exaggeration is seen as result of AUD/JPY liquidity vacuum as market dislocation at a short period of thin market. Aussie should at least be part of the problem as AUD/USD also breached 2016 low at 0.6826. And most apparently, even AUD/NZD spiked to as low as 1.0107 and is now back in Wednesday's range.

Trump: Dec stock decline just a little glitch

Trump said the decline in stock markets in December was just a "little glitch" and the US markets will be good when the trade deals kick in. He told reporters at a Cabinet meeting that "we had a little glitch in the stock market last month." And, "it's going to go up once we settle trade issues, and once a couple of other things happen." He repeated that "We need a little help from the Fed ... but we're going to be good. The trade deals are kicking in." Also, Trump repeated his upbeat message regarding trade talks with China and said they are "coming along very well, we'll see what happens."

On the data front

Swiss PM manufacturing, Eurozone M3 and UK PMI construction will be released in European session. But major focuses will be on US data. ADP job report, jobless claims, construction spending and ISM will be released. We'll see whether these data could support investor sentiments, or worsen them.

USD/JPY Daily Outlook

Daily Pivots: (S1) 108.48; (P) 109.11; (R1) 109.52; More..

USD/JPY's fall accelerates to as low as 104.69 before recovering ahead of 104.62 low. For now, intraday bias remains on the downside despite the current recovery. Decisive break of 104.62 will target 100% projection of 118.65 to 104.62 from 114.54 at 100.51, which is close to 100 psychological level. On the upside, break of 109.46 minor resistance is needed to indicate short term bottoming. Otherwise, outlook will remain bearish even though the current recovery might extend.

In the bigger picture, price actions from 125.85 (2015 high) are seen as a long term corrective pattern, no change in this view. Apparently, such corrective pattern is not completed yet. Fall from 114.54 is seen as another medium term down leg, targeting 98.97/104.62 support zone. For now, we'd expect strong support from there to contain downside to bring rebound.

Economic Indicators Update

Trump said the decline in stock markets in December was just a "little glitch" and the US markets will be good when the trade deals kick in.

He told reporters at a Cabinet meeting that "we had a little glitch in the stock market last month." And, "it's going to go up once we settle trade issues, and once a couple of other things happen." He repeated that "We need a little help from the Fed ... but we're going to be good. The trade deals are kicking in."

Also, Trump repeated his upbeat message regarding trade talks with China and said they are "coming along very well, we'll see what happens."

While there is extreme volatility in the currency markets, stocks were relatively calm though. DOW again staged animpressive comeback overnight. It initially dipped to as log as 22928.59 but closed up 18.78pts or 0.08% at 23346.24. S&P 500 rose 0.13% and NASDAQ gained 0.46%. In Asia, Japan is still on holiday. China Shanghai SSE is currently flat. Hong Kong HSI is down -0.44% while Singapore Strait Times is down -0.73% only.

DOW future is currently down over -300 pts in Asia. And we'll have to wait and see how US stocks would react to Apple's cutting of revenue outlook later in the day. But technically, we'd like to reiterate that while DOW's post Christmas rebound was strong and impressive, it has yet to take out and important resistance zone yet.

That is, 100% projection of 21712.53 to 22877.09 from 22267.42 at 23431.98, the projection level for the corrective rebound. Also, there is 38.2% retracement of 26951.81 to 21712.53 at 23713.93. As long as this resistance zone holds, the long term corrective fall from 26951.81 is still more likely to head to 20000 handle or not.

US treasury will be another key factor to watch ahead. 30-year yield finally closed below 3% handle at 2.982 overnight, down -0.038. 10-year yield dropped -0.025 to 2.661. More importantly, after the Apple news, 10-year yield is now down to 2.620 in Asia. It's very close to 1-year yield at 2.616.

"Currency Crash" occupies a lot of headline in Asian session today after Yen spikes higher during the "thin" period of the markets while Aussie was squeezed lower. We're talking about:

• USD/JPY hit as low as 104.69 comparing to yesterday's high at 109.72.
• EUR/JPY hit as low as 118.62 comparing to yesterday's high at 125.85.
• GBP/JPY hit as low as 131.51 comparing to yesterday's high at 139.92
• And most seriously, AUD/JPY hit as low as 70.27 comparing to yesterday's high at 77.34

Many key technical levels in yen crosses were breached with AUD/JPY breaching 72.39 (2016 low) and hit lowest since 2009. While Yen crosses pared back some much of the exaggerated moves, the trends remains bearish in them despite the recoveries.

The main fundamental trigger of the crash is believed to be Apple's cutting of its sales forecasts amid China slowdown. It's the tech giant's first cut in revenue outlook in almost two decades. CEO Time Cook said the company expects around USD 84B in Q4, sharply lower from prior estimate of USD 89B to USD 93B. Cook also warned that in a statement to investor that "while we anticipated some challenges in key emerging markets, we did not foresee the magnitude of the economic deceleration, particularly in Greater China."

The crash in Yen crosses is described by some as "flash". The exaggeration is seen as result of AUD/JPY liquidity vacuum as market dislocation at a short period of thin market. Aussie should at least be part of the problem as AUD/USD also breached 2016 low at 0.6826. And most apparently, even AUD/NZD spiked to as low as 1.0107 and is now back in Wednesday's range.

As for now and today, Yen remains the strongest one, followed by Swiss Franc and then Euro. Aussie is weakest followed by Sterling and then Kiwi.

USD/JPY collapses to 10-month low

Thin markets and a scramble to cover positions or seek safe havens meant risk-focused currencies tumbled early in the Asian trading session today. USD/JPY collapsed more than three big figures in a matter of minutes, hitting the lowest level since March last year, as the scramble into the safe-haven yen accelerated, while AUD/USD slumped as much as 3.7% to the lowest in almost a decade. The Turkish lira plummeted, falling as much as 5% against the US dollar.

Currencies appear to have stabilized now, with USD/JPY currently down 1.5% at 107.23 and AUD/USD down 0.65% at 0.6940.

AUD/USD Daily Chart

What was the trigger for the crash? There appeared to be no one specific item, though news that Apple had downgraded its iPhone sales forecasts in China piled pressure on slightly shaky sentiment, with an ongoing bank holiday in Japan affecting liquidity. Apple shares tumbled as much as 7% in after-hours trading.

China seeking to boost consumption

December comments from China's President Xi were revisited in the Chinese press today, announcing that the government is considering a “new” package of measures to boost consumption. On December 3 President Xi had commented to that effect too.

Separately, the Peoples Bank of China said yesterday it will adjust the calculation of some banks' reserve ratios, focusing on loans to small- and micro-sized enterprises, in an attempt to boost the impact of an earlier easing step. China's CICC Research has calculated that the measures could release up to 400 billion yuan ($58 billion) of reserves.

Trump's wall remains unfunded

The meeting between Democrats and Republicans which promised much to potentially end the US government shutdown came to nothing. However, Nancy Pelosi, speaker-designate of the House of Representatives, has said that the Democrats will offer a bill tomorrow to reopen the government. Meanwhile, Trump has invited congressional leaders back to the White House on Friday for additional negotiations, though it remains unconfirmed who might accept the invitation..

Data to take a back seat amid volatile markets

Wild movements and thin liquidity is likely to overwhelm any impact of economic data releases today. For the record, UK reports construction PMI for December, which has been on a mild upward trend for the past two months, while the US calendar is populated with the ADP employment change (estimates see it barely changed from November's 179,000) along with the ISM manufacturing PMI. This is seen sliding to 57.9 from 59.3.

Oil is having a positive start to the year as OPEC appears to be delivering on their pledge of production cuts. Earlier in Asia, crude prices were heavy as disappointing data from China confirmed weakness in the second largest economy was accelerating. West Texas Intermediate fell to the session low after Russian production for December rose 4.5% to a record high of 11.45 million barrels per day, slightly more than 11.42 million bpd that was speculated in the middle of last month. Russia is not an OPEC member, but has agreed to cooperate with production cuts with OPEC and their allies.

The strong rebound in oil stemmed initially from the positive move in risk appetite during the New York open. The rise in prices accelerated after news that OPEC’s oil output in December fell the most in two years. The focus was on Saudi Arabia, who delivered 420,000 barrels per day in cuts to 10.65M bpd. OPEC production fell by a total of 530,000 bpd to 32.6 million bpd.

The Canadian dollar is also firmer by 0.5% to 1.3581, last year was the loonie’s worst performance to the greenback in three years.

The pummeled commodity is now extending its gains from the key Christmas Eve low of $42.36. That low was made on thin volume and could be the bottom for oil prices in the medium-term. The WTI daily chart shows that if bullish momentum continues, it could find resistance at the $49.70 level. It is around that area that price could form a bearish Gartley pattern. Point D is targeted with the 70.7% Fibonacci retracement level of the X to A leg and the 200% Fibonacci expansion level of the B to C move. If valid, we could see a pullback towards the $46.90 region. If the reversal pattern is invalidated, key resistance will come from the $52.50 level.

Japan is in the middle of a 4-day bank holiday and liquidity was light after the close. No specific catalyst can be attributed to the massive moves we are seeing in the yen and dollar.

Risk aversion was expected to follow the Apple news of cutting their guidance citing a steep drop in sales in China amid the trade war with the United States. S&P 500 futures dropped 1.2% following the Apple news. The moves seen in FX were extra-ordinary. AUD/JPY fell over 7% at one point.

The Apple cut saw Q1 guidance decimated. They cut Q1 revenue to ~$84 billion verse $91.3 billion eyed.