Market Morning Briefing: Dollar Index Has Broken Above 92

STOCKS

Equities are under pressure. Dow has declined below 32500 and looks vulnerable for a further fall to 32000-31000. There are early signs of a top in place. DAX is managing to hold higher for now but may not sustain as a strong resistance is ahead that can cap the upside and trigger a corrective fall. Nikkei and Shanghai have broken below their key intermediate supports and are bearish to fall further. Nifty and Sensex may give up some gains today following the weakness in the global equities. The broader bias remains bearish for them to break their range on the downside and see a sharp fall. Overall our cautious stance is working out well and the much awaited correction in equities could begin to happen now

Dow (32423.15, −308.05, -0.94%) has declined below 32500 and now looks vulnerable for a fall to 32000 initially and 31000 eventually. The resistance at 33100 has held very well in line with our expectation and there is an early sign of a top in place. The long awaited correction seems can happen now.

DAX (14662.02, +4.81, +0.03%) continues to hover higher around 14600. While the chances of testing 14900-15000 are still alive, weakness in other equity markets can restrict the upside. As such we reiterate that 15000 can be a cap on the upside if a further rise is seen from here. Our broader view of seeing a corrective fall to 14000-13800 remains intact. This can happen either from here itself or after a rise to 14900-15000.

Nikkei (28487.52, −508.40, -1.75%) has declined below 29000 as expected and can head down towards 28000-27000 in line with our expectation. An intermediate bounce from 28000 to 29000 is possible before the fall deepens towards 27000. Also to note is that a fall below 28000 will confirm a double top on the charts which will the potential to drag Nikkei to even 26000 over the medium-term.

Shanghai (3378.64, −32.87, -0.96%) has declined below 3400 as expected. This keeps our bearish view intact. While below 3400, a fall to 3250-3200 can be seen in the coming days in line with our expectation.

Sensex (50051.44, +280.15, +0.56%)may not sustain above 50000 today considering the weakness in the global equities. A sharp fall below 50000 can keep it pressured to break 49000 and see the corrective fall to 48000-47000 that we have been expecting for some time. 50500-51000 can be a good intermediate resistance on the upside now.

Similarly, Nifty (14814.75, +78.35, +0.53%) can also give up some of the gains made over the last few days. 14900 was the key resistance that we had mentioned yesterday can hold well now. A revisit of 14400 is possible while below 14900 which will also keep intact our broader bearish view of seeing 14200-14000 on the downside.

COMMODITIES

As US Dollar trades firm, it continues to put downward pressure on most commodities. Crude prices have fallen as expected and if an immediate corrective bounce is not seen we may expect a test of 55 on both Brent and WTI soon. Gold is stuck within 1720-1760 and needs to break on either side to show up the next course of movement. Silver is bearish towards 25-24 while below resistance at 27. Copper is stuck within the narrow range of 4.0-4.20 and needs to break on either side to bring in volatility. Overall immediate view on most commodities looks bearish. A small corrective bounce could be possible while the overall trend points to the downside.

Brent (60.65) has fallen sharply in line with our expectation of a fall towards 62-60 mentioned yesterday. 60 needs to hold immediately and produce a bounce for the price to move back towards 65 but if the falling momentum continues, we may expect the fall to extend towards 55 or even lower in the coming 1-2 weeks. Small corrective bounces could be possible while the immediate trend is pointed downwards.

WTI (57.58) is also headed towards 55 from where a possible bounce looks possible. An immediate bounce from 57, if seen would delay the fall towards 55 by a few sessions. Overall near term view is bearish.

Gold (1730.30) is stuck in the 1760-1720 region and needs to break on either side to see some decent movement. A break above 1760 is needed for it to rise to 1780-1800 in the medium term. Watch price action near 1760 if a rise from current levels is seen.

Silver (25.22) is holding well below 27 and may head towards 25-24 on the downside. View is bearish while below 27.

Copper (4.0395) is stuck within 4.20-4.00 and is unable to break successively on either side. There are some chances of testing 3.90 before a bounce is seen from there towards 4.20-4.35 again in the medium term. Else a rise from current levels is needed for bullishness to come in.

FOREX

Dollar Index trades higher building pressure on other currencies. Euro may test 1.18 on the downside before bouncing back from there. Dollar Index needs to fall from 92.50 in order to signal a reversal. EURJPY may test 128 in the near term while Pound and Aussie are headed towards 1.37/36 and 0.75/74 respectively. USDCNY is rising slowly and could head towards 6.54/55 while USDINR needs to sustain above 72.40 to head towards 72.60 else a fall to 72.20/10 could be first seen.

Dollar Index (92.39) has broken above 92 and is again headed towards immediate resistance at 92.50. A break above 92.50, if seen would signal early indication of further bullishness.

Euro (1.1843) has fallen sharply yet again as the Dollar trades higher. A break below 1.1835 if seen would trigger a sharp fall towards 1.18 or even lower in the near term. For now we may consider 1.18 to hold for the near term.

EURJPY (128.53) has come down to test 128.50 as expected. It would be crucial to watch if the cross breaks below 128.50 as that could trigger a sharp fall to 128 or even lower. Note that 128 is an important near term trend support which needs to hold to prevent further fall towards 127. Watch price action near 128.

Dollar-Yen (108.52) trades slightly lower and has scope for a fall to 108 but while the Dollar Index trades higher, USDJPY may remain neutral to sideways for a few sessions.

Aussie (0.7599) has broken sharply below 0.77 and could be headed towards 0.75-0.74 in the medium term. View is bearish while below 0.77.

Pound (1.3728) has broken below the 1.38-1.40 range and looks bearish towards 1.37-1.36 in the near to medium term. While below 1.38, Pound could face a sharp fall and head downwards.

USDCNY (6.5216) is slowly inching up towards the upper limit of the 6.48-6.54 range. Immediate view is bullish towards 6.54/55.

USDINR (72.4250) tested 72.27 but bounced back to test 72.52 on the upside before closing at 72.4250. If the pair manages to trade above 72.40 today, we may expect a rise to 72.60 over the next couple of sessions. Else a re-test of 72.30 could be seen with possible extension to 72.20/10 on the downside.

INTEREST RATES

The US Treasury yields have declined sharply across tenors. The US Federal Reserve Chairman Jerome Powell’s comments yesterday that the economic recovery is good but still has a long way to go had triggered this fall. Key supports are coming up for the 10Yr and 30Yr which if broken will confirm a top in place and trigger a further sharp fall from here. The German yields have also dipped and are coming closer to their crucial supports which have to hold to keep the bullish view intact. The 10Yr GoI has broken its sideways range on the downside as expected and is bearish to fall further in the coming days.

The US 2Yr (0.14%) remains stable while the 5Yr (0.80%), 10Yr (1.60%) and 30Yr (2.31%) Treasury yields have come-off sharply. The first resistance level of 1.8% itself seems to be holding well on the 10Yr. A strong fall below 1.60% will give an initial sign of a top in place and can drag the 10Yr to 1.5% initially and then 1.4% eventually. The 30Yr has an important support at 2.20% which has to be broken to confirm a top in place. The price action in the coming days will need a close watch.

The German 2Yr (-0.72%), 5Yr (-0.68%), 10Yr (-0.34%) and the 30Yr (0.23%) yields have dipped across tenors. 0.20% on the 30Yr and -0.40% on the 10Yr are important supports while above which our bullish view of seeing -0.20%/-0.15% (10Yr) and 0.35% (30Yr) on the upside will remain intact. A break below these supports will negate our bullish view.

As expected, the 10Yr GoI (6.1440%) has broken below 6.16% and has also tested 6.14% on the downside in line with our expectation. Our bearish view of seeing 6.10% on the downside remains intact. A bounce from 6.10% to 6.15%-6.16% cannot be ruled out before the fall extends eventually towards 6% over the medium-term.