Market Morning Briefing: Euro Is Headed Towards 1.22

STOCKS

Dow, DAX, and Nikkei remain stable at higher levels. While a sideways consolidation looks like a possibility, it will have to be seen if they can see an extended rise before a correction comes into play. Shanghai is hovering around its crucial resistance level of 3600 which has to be broken decisively in order to become more bullish from a long-term perspective. Sensex and Nifty have come-off from the day’s high yesterday but have key supports that will have to be broken in order to indicate a top in place and signal a correction. Overall, equities sustain at their highs and remain bullish as there is no strong signal of a correction/reversal yet.

Dow (31176.01, −12.37, -0.04%) remained higher and stable. Our view remains the same. While above 31000, the chances of seeing 31500 and even an extended rise to 32000 is still alive. Thereafter we expect the Dow to reverse lower and see a sharp corrective fall to 30000-29000. DAX (13906.67, −14.70, -0.11%) remains within the expected 13600 and 14000/14100 range for now. As being mentioned over the last couple of days, a strong rise past 14100 will be needed to see 14500 on the upside. While below 14100, the sideways consolidation can continue for some more time. Also, the bias will remain bearish to see a break below 13600 and a fall to 13200 eventually.

Nikkei (28642.31, −114.55, -0.40%) continues to trade stable above 28500. We retain our view of seeing a sideways consolidation between 28000 and 29000 in the near-term. As mentioned yesterday, a strong break below 28000 is needed to turn the outlook bearish for a fall to 27000-26500 and also to negate the chances of seeing 29600 on the upside.

Shanghai (3595.62, −25.64, -0.71%) has come off from the high of 3636.24 yesterday. As mentioned yesterday, a strong close of 3625 is needed to boost the bullish momentum to move up to 3700 and also negate the chances of seeing 3475-3450 on the downside. Such a break will also be bullish from a long-term perspective to see 4400 on the upside.

Nifty (14590.35, −54.35, -0.37%) has come off from the high of 14753.55 to close lower yesterday. It will have to be seen if the fall extends today or not. However, 14200 will be a crucial level that will have to be broken in order to bring the Nifty under pressure and negate the chances of seeing 14800-15000 on the upside. While above 14200, the broader trend will continue to remain up.

Similarly, 48500-48000 will be a crucial support zone to watch on the Sensex (49624.76, −167.36, -0.34%) . A strong fall below 48000 will be needed to negate the bullish view of seeing 50300 and 51000 on the upside that we had mentioned yesterday.

COMMODITIES

Commodities look weak just now and trade stable or at slightly lower levels. But we expect some ranged movement in the near term before again seeing a rise in the medium term. Brent (55.49) and Nymex WTI (52.49) both trade lower today and could trade within 54-58 and 51-55 regions for the near term. Immediate view is ranged with a possible test of upper resistances.

Gold (1863.50) is stable near levels seen yesterday. We may expect a rise towards interim resistance at 1880 from where a dip towards 1860-1840 can be possible. Only a break above 1880 if seen and sustains will make the view bullish for a possible rise towards 1920 or higher in the medium term.

Silver (25.75) has dipped slightly from 26.05 and while the resistance near 26 holds, we may expect the prices to trade lower before another bounce is seen targeting 27 on the upside. Copper (3.6275) has dipped too and seems to be stuck in the 3.66-3.60 region for now. But we expect a slow and steady rise towards 3.75/80 in the medium term.

FOREX

Most currencies look stable just now but could get stronger in the medium term. Euro,

EURJPY, Aussie, and Pound may dip slightly from interim resistances above current levels but could gradually strengthen in the medium term. Dollar Index needs to break below 90 to head towards 89. USDCNY could be capped at 6.4775 and may fall back to 6.45/44 soon. USDINR may fall towards 72.80/75 on a break below 72.90 but if 72.90 holds just now we may expect a rise to 73.15/20 before the expected fall takes place.

Dollar Index (90.089) has come down to test 90 and needs to break lower in order to fall further towards 89. Watch price action near current levels. Overall the medium trend looks bearish.

Euro (1.2172) is headed towards 1.22 and needs to sustain above it to target 1.23 and higher in the medium term. Watch price action near 1.22 for a possible break on the upside. Any rejection from 1.22 could lead to a short corrective dip followed by a rise later.

EURJPY (126.03) has risen as expected and could head towards 126.50. Thereafter a sustained rise beyond 126.50 is needed to keep the upward momentum strong and eventually take the pair higher towards 127. Near term, the trend is up.

Dollar-Yen (103.53) remains stable but may slowly move lower to target 103 or even 102.50 on the downside.

Aussie (0.7749) is holding well below 0.78 and while that holds, a dip to 077 looks possible. A sustained break above 0.78 is needed to take the currency further up towards 0.79-0.80 in the longer run.

Pound (1.3714) has risen above 1.37 and could now be headed towards 1.38 or higher. The immediate trend looks bullish.

USDCNY (6.4681) has scope for a fall towards 6.45/44 in the near term as an immediate rise could be capped at 6.4775. The view is bearish for the medium term.

USDINR (72.9950) traded within the narrow 72.92-73.00 region and held above 72.90 as expected. While above 72.90, we may expect a corrective bounce towards 73.15/20 before another sharper decline is seen. Failure to hold above 72.90 could straight lead to a fall to 72.75 in the near term. The medium-term view is bearish.

INTEREST RATES

The US Treasury yields have bounced-back sharply at the far-end. A further rise from here will see a test of the key resistances first before the expected fall happens. The German Yields have risen yesterday. While this bounce sustains, our earlier bearish view will get negated as the yields will have the potential to extend the rise going forward. The European Central Bank left the rates and the stimulus quantum unchanged in its policy meeting yesterday.


However, the central bank has reiterated to use all possible measures to support the recovery. The 10Yr GoI has closed just below a key resistance which if broken today can take it further higher. That would delay the preferred fall that we have been mentioning over the last few days.

The US 2Yr (0.12%) and 5Yr (0.45%) Treasury yields continue to trade stable while the 10Yr (1.11%) and the 30Yr (1.88%)have bounce-back well. While this bounce sustains, a further rise to 1.20%-1.25% (10Yr) and 1.95%-2% (30Yr, revised up from 1.90%-1.95% mentioned earlier) can be seen first. Thereafter the yields can reverse lower targeting 0.90%-0.80% (10Yr) and 1.75%-1.70% (30Yr) and even lower levels on the downside going forward.

The German 2Yr (-0.71%), 5Yr (-0.70%), 10Yr (-0.50%) and the 30Yr (-0.08%) have moved up across tenors. The 30Yr has risen past -0.10% while the 10Yr is at its resistance level of -0.50%. A further rise from here will negate our bearish view of seeing -0.60% (10Yr) and -0.20% (30Yr) on the downside. Such a move will turn the outlook bullish to see a test of -0.40% and 0%-0.05% on the upside in the near-term.

The 10Yr GoI (5.9581%)has risen further and has closed in the 5.95%-5.96% resistance zone. A break above 5.96% can take the 10Yr GoI further up to 5.98%-5.99% in the coming days. Thereafter a reversal is possible. The 10Yr GoI will now have to fall below 5.93% in order to test 5.90%-5.86% on the downside that we have been mentioning over the last few days.

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