Market Morning Briefing: Euro Has Tested 1.18

STOCKS

Equities continue to remain weak. Dow failed to sustain the bounce above 32500 and remains vulnerable to test 32000-31000 on the downside. DAX still keeps alive the chances of seeing some more rise from here before the expected correction begins. The bounce in Nikkei and Shanghai seen in early trades today could be short-lived. They are likely to reverse lower and keep the bearish view intact. Sensex and Nifty have resumed their fall yesterday and are looking weak to break their range on the downside and see a deeper fall in line with our expectation.

Dow (32420.06, −3.09, -0.01%) has come-off sharply from the high of 32787.99 indicating the presence of fresh sellers at higher levels. This keeps intact our view of seeing a corrective fall 32000 and 31000 while below 32500. The 33000-33100 region will continue to act as a strong resistance and cap the upside if a sustained rise above 32500 is seen.

DAX (14610.39, −51.63, -0.35%) is still hovering around 14600. Our view remains the same. A sharp corrective fall to 14000-13800 can be seen in the coming weeks. But whether that fall will happen from here itself or after an extended rise to 14900-15000 is not clear.

Nikkei (28640.10, +234.58, +0.83%) has recovered slightly after having fallen sharply below 29000 yesterday. 29000-29200 can act as a resistance and cap the upside. Our bearish view of seeing 28000-27000 on the downside remains intact. Also as mentioned yesterday, a fall below 28000 will confirm a double top on the charts and can drag Nikkei to even 26000 over the medium-term.

Shanghai (3374.75, +7.69, +0.23%) has bounced today from the low of 3345 but is likely to be short-lived. 3390-3400 can cap the upside if the bounce extends. While below 3400, the bearish view of seeing 3250-3200 on the downside remains intact.

As mentioned yesterday, Sensex (49180.31, −871.13, -1.74%) did not sustain above 50000 and has declined sharply. This keeps intact our bearish view of seeing a break below 49000 and a fall to 48000-47000 in the coming days.

The resistance at 14900 on Nifty (14549.40, -265.35, -1.79%) has held very well and the index has come-off below 14600. A test of 14400 can be seen again. The chances are high now for Nifty to break 14400 and fall to 14200-14000 that we have been expecting. The fall can even extend up to 13800.

COMMODITIES

Crude prices have risen slightly but the corrective bounce could be short lived as the overall trend looks bearish for a fall towards 60-55 on Brent and 55 on WTI. Silver is clearly bearish while below 27 and could head towards 25-24 in the near term. Gold is stuck within a narrow range and needs to break on either side of 1720-1760 to give some clarity on further movements. Copper may rise towards 4.20/30 if it holds above 4.00 else a fall to 3.90/80 could be possible before the expected rise is seen.

Brent (63.63) and WTI (60.18) have risen as expected yesterday and may extend the corrective upmove slightly above current levels towards 65 (Brent) and 63 (WTI) before again falling back towards 60 (Brent) and 55 (WTI) or even lower. Overall view is bearish while below 65 for crude prices.

Gold (1733.00) is hovering near 1730 while within the range of 1760-1720. Unless a break on either side of this range is seen, it would be difficult to project further direction from here. Movement within the narrow range may continue for some more time.

Silver (25.09) is bearish towards 25-24 while below 27.

Copper (4.0225) is trading close to support at 4.0 and needs to rise sharply from here to head higher towards 4.20/30 in the near to medium term. A break below 4.0, if seen and sustained would drag Copper down to 3.90/80 before a bounce from there is seen.

FOREX

Dollar Index trades higher but needs to sustain below 93 in order to bring about a possible reversal in other currency pairs. Euro tested 1.18 and needs to sustain higher else it could be vulnerable to a sharper fall below 1.18. EURJPY, Chinese Yuan and Indian Rupee look weak for the near term and could test 127, 6.54/55 and 72.80 respectively. Aussie has bounced and could move up while above 0.76. Pound can also move up a bit from current levels before resuming the fall in the medium term.

Dollar Index (92.524) trades higher but needs to face strong rejection at 93 to fall sharply from there towards 92 or even lower. Watch price action near 93.

Euro (1.1824) has tested 1.18 and bounced slightly from there. While 1.18 holds just now, we may expect a bounce back towards 1.19 or higher in the near term. Only a break below 1.18, if seen would make Euro vulnerable for a sharper fall from current levels.

EURJPY (128.77) has bounced slightly from 128.21 tested yesterday. While above important support near 128, we may expect a bounce back to 129.0-129.20 in the near term. Failure to hold above 128 would make the pair strongly bearish for a further fall towards 127.50-127.0.

Dollar-Yen (108.90) has bounced well from levels near 108.50 and while that holds, a test of 109.50-110 cannot be negated in the near term before a sharp reversal is seen.

Aussie (0.7607) may hold above 0.76 just now to see a corrective short lived bounce to 0.7650-0.77 but while below 0.77, we may not negate a possible fall towards 0.75/74 in the medium term.

Pound (1.3706) may bounce either from current levels or from slightly lower levels of 1.36 to head towards 1.8 in the near term. Note that 1.38 is now the immediate resistance and while that holds, view is tilted to the downside.

USDCNY (6.5308) has risen well and may continue to rise towards 6.54/55 in the next few sessions.

USDINR (72.5625) tested 72.68 but came off to close slightly lower on the onshore OT market yesterday. There is scope for a test of 72.60-72.80 again today before coming off from there. Immediate supports are seen near 72.50 and lower near 72.40. If 72.40/50 sustains in the near term and the pair trades higher, a break above 72.80 would not be a surprise in the coming sessions. Watch price action near 72.80 today.

INTEREST RATES

The US Treasury yields have bounced slightly. Though the trend is still up, there is limited room on the upside from here. We will be looking for the yields to see a trend reversal going forward. The German Yields are holding well above their key supports and continue to remain bullish. The 10Yr GoI can see a corrective rise before a fresh fall is seen again.

The US 2Yr (0.15%), 5Yr (0.82%), 10Yr (1.63%) and 30Yr (2.33%) Treasury yields have moved up slightly after a sharp fall over the last couple of days. Though the trend is still up while above 1.60% (10Yr) and 2.20% (30Yr), the upside is likely to be capped from here. 1.8% – 2% on the 10Yr and 2.5%-2.6% on the 30Yr are the important resistances that can cap the upside and trigger a reversal if a strong rise is seen from current levels. 1.60% (10Yr) and 2.20% (30Yr) are the levels to be broken in order to indicate a top in place and become bearish.

The German 2Yr (-0.72%) and 5Yr (-0.69%) yields remain stable while the 10Yr (-0.36%) and the 30Yr (0.21%) have dipped further. We reiterate that while above the supports at 0.20% (30Yr) and -0.40% (10Yr) the view remains bullish to see -0.20%/-0.15% (10Yr) and 0.35% (30Yr) on the upside. As mentioned yesterday, only a break below 0.20% (30Yr) and -0.40% (10Yr) will turn the outlook bearish.

The 10Yr GoI (6.1521%) fell towards 6.10% as expected and had risen-back sharply from the low of 6.1114% yesterday. A corrective rise to 6.18%-6.20% is possible on a break above 6.16% and the yield can reverse lower again thereafter. From a broader picture, the 10Yr GOI is bearish to test 6%-5.9% on the downside over the medium-term while it sustains below 6.20%.