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STOCKS

Overall global stocks could turn bullish in the medium term. Dow, Dax and Nifty could soon test immediate support levels from where a bounce could be expected. Shanghai looks strongly bearish amongst the other indices mentioned. Nikkei could trade in the narrow region for some more time.

Dow (25971.06, +0.44%) rose to close at higher levels yesterday after testing an intra-day low of 25754. Near term looks sideways to bullish with a maximum possible low of 25600 in the near term. While above 25600, the index could start moving up towards 26000-26500 in the medium term. Failure to sustain above 25600 could initiate a fresh fall that could last longer. A rise from current levels is more preferred.

Dax (11970.27, -0.13%) could test horizontal support just above 11700 as seen on the 3-day chart which if sustains could bounce the index back towards 12000 and higher. In case a break below 11700 is seen, the index could head towards weekly support at 11600 from where it could then bounce to move upwards.

Nikkei (22571.41, -0.41%) saw a decline after rising well from support near 22200. While the upmove remains intact, it could test resistance near 23000 in the near term. An eventual contraction of price movement is seen in the 22000-23000 region which could lead to a break out on either side within the next couple of weeks.

News of threatening tariffs on additional $267 bln goods by Trump took down Shanghai (2659.87, -0.19%) sharply yesterday to levels below 2700. Weakness continues and the index looks strongly bearish on the weekly candles. If the index does not stop at 2600, downside could continue over the medium term, making fresh lows towards 2550-2500 (could be triggered on fresh news from the trade-war front). For now, we may expect 2600-2650 to hold and produce a bounce back towards 2700+ levels.

Nifty (11287.50, -1.32%) is finally into a correction mode and could test 11200 as we had mentioned in our earlier editions. While 11200 holds, the index could bounce back in the near term. Failure to hold above 11200 would open up chances of testing 10800 in the longer run (see lower support at 10800 on the weekly candles).

COMMODITIES

News impacting a rise in the Crude prices in the near term:

1. The American Petroleum institute (API) reported a major draw of 8.636 mln barrels of US Crude inventories for the week ending 7th Sep as per its report released yesterday.
2. The US EIA lifted oil price forecast and lowered the crude output expectations
3. We wait to see the supply data from the EIA which is due to be released today. Analysts expect a fall of 2.7 mln barrels in the crude supplies.
4. Traders are also considering the impact of looming US sanctions against Iran, which will target oil exports from November. Washington has put pressure on other governments to also cut imports, and many countries and companies are already falling in line and reducing purchases, triggering expectations of a tighter market.

Brent (79.56) and WTI (70.08) have both risen sharply on impact coming in from the news front as stated above. As per the charts, WTI had important support levels on the 3-day and weekly charts that we have been mentioning for the last couple of days and the support seems to be holding well for now. WTI looks bullish in the near term towards 72. Brent on the other hand seems to be pulled up by the rise in WTI, breaking above the crucial resistance near 78. Near term target for Brent is seen at 81.

Gold (1199.50) is stable without any major movement. As mentioned yesterday, while the resistance on the 3-day and weekly charts hold, downside risks towards 1180-1175 remains open for the near term.

Copper (2.6185) has dipped a bit. Although the trade war tensions are impacting the Chinese Stocks negatively, Copper may possibly remain stable in the near term. Long term support on Copper holds for now and is not likely to be breached keeping the price stable in the near term. A rise in Aussie on the other hand could possibly aid a rise in Copper. Overall some ranged move could be on the cards

FOREX

Euro (1.1592) and Pound (1.3010) continue to stay below resistances near 1.165 and 1.305-1.308 as the markets seem to await the ECB meet and US CPI data release on Thursday. Meanwhile, Dollar Rupee looks overbought – but could still make new highs in the sessions ahead.

Euro (1.1592) again came off from resistance near 1.165 yesterday. As the ECB meet (on Thursday) approaches, the Euro might trade between 1.165-1.155 for another session. Note that a break below 1.153-1.150 or a breach above 1.17 would set the trend for the next move. Preference till now has been tilted towards a bearish break below 1.15 – however chances of a rise towards 1.18 can’t be ignored.

Dollar Index (95.16) tested a low near 94.88 yesterday, but has risen from there. We have been looking for support near 95 to hold and for the index to rise past 95.5 in the coming weeks. The ECB meet and US CPI release on Thursday might well be the decider for whether 95.5 is breached or not.

Dollar Yen (111.47) seems to be breaking resistance on daily candles near 111.40 – however, there could be some resistance near previous highs of 111.76 and 112.15. Higher up, on weekly candles, we also see 112.50 as a crucial resistance. While below 111.76, it could still come down towards 110.80 in this week.

Euro Yen (129.21) has crucial resistance on weekly candles near 130. As long as Euro stays below 1.165 and Dollar Yen below 111.76, Euro Yen should stay below 130. Given our bearish tilt on the Euro-Dollar, the preference on Euro-Yen is also bearish for now.

Pound (1.3010) tested resistance on daily candles at 1.3087 yesterday and has dipped from there. While it stays above 1.295, it could go on to test the resistance once again. However, preference is for the resistance to ultimately hold and push Pound down in the weeks ahead.

Dollar Yuan (6.8737) has continued to trade near the 6.870-6.875 resistance level. There are chances of a breach of this resistance leading to a test of previous highs near 6.89. A breach of 6.89 would be very bullish.

Aussie (0.7099) dipped below 0.71 yesterday to a low of 0.7085, but did not see follow-through Stop Loss selling. At least not yet. So, the super crucial Support at 0.71 is holding on first testing. Need to see if it produces a good bounce or not. Need a rise past 0.72 to suggest chances of bottoming out.

Dollar Rupee (72.69): Monday's high of 72.67 was exceeded yesterday and the market closed above it. So, maybe we could be in the 30% probability zone which talks of 72.80-73.00-73.50? The rise in Crude prices could be negative for Rupee strength. But remember, the market remains highly Overbought.

INTEREST RATES

India 10 year bond yield (8.1823%) is at a crucial resistance level currently. We prefer a dip from current levels. Conversely, if this resistance is breached, the next upside target would be near 8.25%-8.30%, from where the yield should then come off.

Following news points are currently important in context of US Yields:

Rise in Crude prices could be a factor driving US yields up.

New treasury auctions of 10 year and 30 year notes in this week could also potentially push US yields slightly higher.

US CPI data release on Thursday coupled with the ECB meet could both be bullish for US yields. Expectations are for strong US CPI numbers: on Friday, US non farm payroll data beat expectations and the average hourly earnings also came out strong.

Meanwhile the US-China trade conflict continues to intensify with Trump reportedly saying that tariffs might be imposed on all Chinese imports to USA (ie on $467 bn worth of goods) - if that happens, risk aversion would prevent any significant rise in yields. This is one of the major reason why we believe that the May high of 3.125% for the US 10 year yield might have been the year's top.

US 10 Year Yield (2.97%), as per expectation has moved closer towards the 3% barrier. We expect the resistance at 3% to hold.

German 10 year yield (0.43%), as we have been saying, has risen above resistance at 0.40% and could rise towards 0.45%. A further rise beyond 0.45% would be quite bullish.

The German 5 Year yield (-0.14%) also looks quite bullish towards -0.10%. However the 30 year yield has resistance (1.11%) coming up near 1.15% - this could indicate that the 10 year and 5 year yields might not be too bullish in the near term. Maybe a dovish stance by ECB on Thursday could help in stopping the rise in German yields.

Japanese Economy Minister Toshimitsu Motegi is said to be meeting US Trade Representative Robert Lighthizer on September 21 in the US. That will be a follow up to an inconclusive meeting on trade back in August. Back then Motegi said acknowledged the importance of expanding trade. Also, both sides exchanged views individual areas but nothing had been decided. Earlier this week, Motegi was quoted saying that the US and Japan have some difference in views but will seek to proceed with the discussions.

It's known that Japan has been insisting in bring the US back to the Trans Pacific Partnership, which Trump pulled out soon after taking office. The multilateral framework is what Japan has been pushing for, which is clearly shown in its leadership role in the TPP too. On the other hand, Trump has been trying to force Japan into bilateral agreement, which he fails o far. It's uncertain how this fundamental difference could be bridged.

The meeting between Motegi and Lighthizer will precede summit between Japanese Prime Minister Shinzo Abe and Trump on the sidelines of a UN meeting starting September 25.

Key Highlights

• The Aussie dollar declined recently and broke the 0.7180 support against the US Dollar.
• There is a major bearish trend line in place with resistance at 0.7135 on the 4-hour chart of AUD/USD.
• The NFIB Business Optimism Index in the US climbed from 107.8 to 108.8 in August 2018.
• Today, the US Producer Price Index for August 2018 will be released, which is forecasted to rise 3.2% (YoY).

AUDUSD Technical Analysis

The Aussie Dollar started a major downward move after it was rejected near the 0.7380 level twice against the US Dollar. The AUD/USD pair broke the 0.7250 and 0.7180 supports to move into a bearish zone.

Looking at the 4-hours chart, the pair broke a couple of bullish trend lines at 0.7275 and 0.7180 to extend losses. More importantly, the pair is now trading well below the 0.7200 support, the 100 simple moving average (red, 4-hours), and the 200 simple moving average (green, 4-hours).

It seems like the pair may continue to move down towards the 0.7040 and 0.7020 supports in the near term. The last key support is at 0.7000, below which the pair may decline towards the 0.6900 level.

On the upside, an initial resistance is near the 0.7120 level. More importantly, there is a major bearish trend line in place with resistance at 0.7135 on the same chart. If AUD/USD move above the trend line, there could be a decent recovery towards the 0.7200 resistance.

Above 0.7200, the most significant hurdle for the Aussie dollar buyers is at 0.7250 and the 100 simple moving average (red, 4-hours).

Overall, the pair remains in a downtrend as long as it is below 0.7180 and 0.7200, and it could decline towards 0.7020 and 0.7000.

Economic Releases to Watch Today

• Euro Zone Industrial Production for July 2018 (MoM) – Forecast -0.5%, versus -0.7% previous.
• US Producer Price Index August 2018 (YoY) – Forecast +3.2%, versus +3.3% previous.
• US Core Producer Price Index August 2018 (YoY) – Forecast +2.7%, versus +2.7% previous.
• Fed’s Beige Book.

Channel one's confidence

USDJPY and Emerging markets traded with a more positive tone overnight, although EM is hardly out of the weeds just yet, as US equity markets ignored a shaky start to finish higher on the day led by energy and telecom sectors.

When the S&P markets rally in the face of higher global yield and a slightly steeper US yield curve, only good should come out of this for investors. Indeed, this price action does suggest we could be in for a bullish extension in US equities over the near term. The buoyant US markets continue to benefit from the run of very robust US economy and should continue to do so as the US economy is firing on all cylinders. Forget that September blues nonsense the markets are readying to take off again!!

Oil Markets

The combination bullish market calls, Iranian sanction developments, preparation for Hurricane Florence were all positive for oil prices overnight and the API data added to the momentum in late NY trade.

The American Petroleum Institute figures for the week ended September 7 showed a much larger-than-expected 8.6 million barrels and WTI had reacted positively to the release on this relatively dramatic decline versus analyst's expectation. Even Cushing which everyone was fretting about early in the week due to pipeline bottlenecks showed a decrease of -1.17 million barrels.

But the survey did show larger-than-expected 5.8 million barrels build in distillate inventories and a larger-than-expected 2.1 million increases in gasoline stocks. So, we see the drop in crude stocks offset by rising oil products suggesting inventory runs are high.

So, the modest uptick in WTI prices on the headline remains in line with the change in total petroleum inventories.

But energy markets have been supported overnight as there was much more focus on Hurricane Florence than markets had priced in, indeed a case of batten down the hatches along the Colonial Pipeline.

But its Brent that continues to drive sentiment as the premium to WTI has widened out to more than $10 per barrel as concerns of potential supply outages on the back of reduced Iranian imports are driving the global benchmark higher while WTI has been held back by the prospects seasonal builds ahead of the maintenance period.

The Iran sanctions are the most dominating driver and will continue to be so, but with the Whitehouse hawks circling above, the administration issued a stern warning that US will hold Iran accountable for any attacks by proxies in Iraq that cause injury to Americans or damage to US facilities. So again, the middle east risk embers are smouldering and reading to ignite. Typically, escalation and provocations in the Middle East tend to push prices higher, so worth watching this development.

Gold Markets

Gold caught a remarkable strong tailwind overnight as hedgers were in covering possible tail risks prospects for escalating U.S.-China trade tensions. But those constantly smouldering Middle East embers could ignite into raging geopolitical firestorm after the Whitehouse warned that if Iran or their proxies threaten any American assets in the region, there will be a severe price to pay.

However, higher US yields should remain US dollar supportive and does continue to suggest upticks to $1200 will stay fleeting as gold bears will add to shorts at this crucial level. But it will be Thursday's US CPI and Friday's retail sales data that will provide the next big test for this bearish theory.

Asia Markets

South Asia market risk is an entirely different kettle of fish, and “when in doubt stay out” as there are few clear-cut risk decisions on the back of the looming China tariffs, tech sector woes and likely slowdown in China. One look at the Hang Seng price action should be enough to scare even the most prominent contrarians.

However, Emerging Market moves are less idiosyncratic and becoming more a function of global risk sentiment. Which is encouraging as we could see all regional markets, even those under extreme currency pressure could benefit immensely from the subtle optimism around global trade disputes being resolved. But its a matter of how to channel one's confidence in the appropriate manner in these under-owned conditions based after the recent waves of regional capital outflows. Be nimble!!

Currency Markets

Canadian Dollar

Patience is a virtue and even more so when trading the Canadian dollar which is best done from a playbook. The Loonie is still at the negotiating table but with US President Trump saying the talks are going “very well. The latest Reuters headline suggesting Canada is ready to offer limited access to the Canadian dairy market to the US as a concession. Goodwill concessions are apparent, and the Canadian Dollar has reacted favourably, and as we get down to the nitty-gritty and on any trilateral NAFTA announcement, the USDCAD could drop to the low 1.29's in a heartbeat, but in the meantime, we could be in for more stop and go on headline risk.

Australian Dollar

Not too unexpected the AUDUSD is putting up a staunch defence at the .71 levels but this could be little more than due oversold conditions as some traders are looking to play a contrarian's hand as any weakness in US data could see a much greater outsized move on short squeeze than sell off on reliable data. I try to avoid this type of “fools logic “, but it does play a part in the thought process, but with NAB business confidence falling to a two-year low compounding all the negatives from last week, I fully expect the Aussie to bleed from a differential perspective alone with a test of .7000 in the offing. If not for the reprieve from trader's insatiable demand from buying USDCNH overnight, we could be trading nearer the .7075 levels today in my opinion.

The Euro

The biggest issue is we seem to be doing the same thing over and over. And the EURUSD is doing little more than testing the near-term ranges. Participation is predictably low as the EURUSD remains mired in the ” no trade zone” straddling the 1.1600 level.

Japanese Yen

We should test the 112.00 if risk remains intact, but the big question is, however, do you want to own USDJPY risk at this level. Risk sentiment is turning positive every so gradually while US yields continue to move higher, we could push through that 112.00 on a positive CPI print.

EM

South African Rand

Nothing like a ZAR rally to signal the market has turned on the risk lights back on. Although the test of 15.00 was faded, the market has been holding on these gains on the back of this week positive Brexit headline. Former colonies have enjoyed favourable terms trade with the UK, and Brexit progress will be viewed in a favourable light.

The Malaysian Ringgit

Trade wars are one of the most significant regional factors, and while an escalation will negatively impact the MYR, the currency is much better insulated from terms or trade shifts other ASEAN countries will feel due to Oil exports. Next to that is the negative impact of higher US yields. So, expect the market to open mixed today with US Treasury yields higher, and trade war fears still front and centres.

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Dollar is rather strong today as lifted by surging US yields as well as rally is equities. Though, it's slightly outperformed by Swiss Franc and Canadian Dollar. For the Swiss Franc, it's resilience could be seen as a sign that investors still have many things to worry about, in particular in the emerging markets. Canadian Dollar might be lifted by oil price as WTI is back above 69.

Yen is apparently the weakest one as pressured by US yields and rally in US indices. Australian and New Zealand Dollar follow. Meanwhile, Sterling's lift from Brexit optimism faded rather quickly. Rhetorics from all sides are pointing to a Brexit deal in 6-8 weeks. But the impact on the markets are just that.

Apple and Microsoft are the main drivers of the US stock markets. DOW is up 0.54% at the time of writing. S&P 500 up 0.49% and NASDAQ up 0.69% respectively. Five year yield is up 0.037 at 2.865, 10 year yield is up 0.035 at 2.972. European indices staged a strong rebound before close. FTSE ended just down -0.08% and DAX down -0.13%. CAC has indeed closed up 0.27%.

USD/JPY is a pair to watch for the rest of the session. 111.75/82 resistance zone is now within touching distance. Decisive break will resume the rebound from 109.76 and target 113.17. More importantly, this reaffirm our view that corrective from 113.17 has completed at 109.76 and whole rise from 104.62 is still in progress.

UK Chancellor of Exchequer Philip Hammond told upper house of parliament today that a Brexit deal can be agreed in 6-8 weeks with EU. Though, the agreement would be less detailed. He said "there's merit in having quite a bit of detail, but clearly we don't have enough time to negotiate the full draft legal text in what will be quite a complex future partnership agreement."

Hammond's Treasury also announced earlier today that BoE Governor Mark Carney will extend his term till January 2020. Hammond also told MPs that "if we leave the European Union without a deal... we could expect a period when there would be some turbulence and when there would be some issues arising for financial services businesses." And, "a governor who was leaving at the end of June, with his bags already packed, would be in a poor position to represent the UK in what might be some quite critical - and time critical - negotiations over that period."

Heading to restart trade talk with the US, Canadian Foreign Minister Chrystia Freeland said that the discussions were still constructive. She added her team had "a lot of contact" with US Trade Representative Robert Lighthizer over the weekend.

Freeland added that "we agreed that it would be useful to continue talking today, so we're back for more negotiations." And, "the conversations over the weekend continued to be constructive and productive."

The British Pound feels confident against the USD this week and continues rising. One thing that supported the British currency was the Brexit news, which is very positive: the parties are finally moving in the right direction in discussing trade relations and conditions. The UK and the EU representatives are doing their best with a focus on results. Another thing is the British statistics, which are rather mixed indeed, but investors have a lot of numbers to choose from.

So, the European Chief Negotiator for the United Kingdom Exiting the European Union, Michel Barnier, left open a real possibility of reaching the agreement with the UK with the next 6-8 weeks. This period is the same mentioned by the British Prime Minister Theresa May earlier: she told the media that the Brexit talks might be successful as early as in October. British and European politicians couldn’t arrive at a consensus for a long time and put the negotiations on hold several times, because each party wanted to pursue its own goals. And now, when the time is running out, the talks are progressing quickly.

This is about the trade agreement effective for the transition period of the next 2 years. Uncertainty about this issue really made both European and British investors and businesses feel very nervous.

The numbers published earlier today showed that the British labor market is rather mixed. The Unemployment Rate in the country in July remained the same as before, at 4.0%, but the Claimant Count Change expanded by 8.7K, which is more than expected. The Average Earnings Index added 2.6% 3m/y, which is better than both previous and expected readings of 2.4% 3m/y.

The numbers are quite strange and unusual, for summertime at least. As a rule, in summer the tertiary industry requires a lot of seasonal employees, including on a part-time basis.

There are several things to pay attention to in the H4 chart of GBPUSD. The first one: after breaking the resistance lien of the previous downtrend, the pairs started a new rising correction, which has already reached the retracement of 23.6%. The next possible targets of this correction may be the retracements of 38.2% and 50.0% at 1.3315 and 1.3518 respectively. The second thing is analyzing the chart from the technical point of view. The current short-term uptrend is heading towards the resistance line of the main correctional channel at 1.3110. After breaking this level, the price may move towards the upside projected channel and its resistance level close to the retracement of 50.0% at 1.3518. One also shouldn’t exclude a possibility that the instrument may fall to reach the support line of the main channel. It may happen if the pair breaks the short-term support line at 1.2960.

Dollar's strength in a relatively mixed markets today can be partly attributed to surging US yields.

Five year yield is up 0.031 at 2.859. 2.887/2.941 resistance is within touching distance for FVX

10 year yield is also up 0.029 at 2.966. 3.115 high is a bit far for TNX. But 3.000 now looks touchable.

30 year yield is also up 0.023 at 3.111.