Market morning briefing: Pound unable to break above 1.37
Indian stocks continue to outperform others and although above the immediate supports at 17800 (Nifty) and 60,000 (Sensex) the rally should continue. Dow and Dax fell overnight and have a chance to drop to 34000-33750 and 15000-14800 before a rebound is seen from there. The Nikkei is expected to fall back towards 28000-27500 before rebounding towards 28750. An immediate range of 28750-27500 seems likely. Shanghai needs to hold above 3500 to keep the bullish view intact.
The Dow (34378.34, -117.72, -0.34%) has strong resistance near 35000-35200 and although this holds, the index could fall again to 34000-33750 in the near term before falling. try to go up again. The immediate view is bearish while below the mentioned resistance.
The DAX (15146.87, -52.27, -0.34%) has fallen slightly and is expected to stay in the broad range of 14800-15400 / 500. When trading in the middle of the mentioned range, there is room for movement on either side to test 14800 or 15400/500. Only a sustained breakout on either side of the range will cause the movement to continue.
Nikkei (28184.51, -46.43, -0.14%) has strong support at 27500 and although it holds a narrow range, a trade between 28750-27500 is possible. But note that there is enough room on the upside for a possible rise to 29250/500 which may come into play on a rise above 28750.
Shanghai (3527.07, -19.86, -0.55%) fell below 3550. A rebound from 3500 is needed to bring the index back to 3600 or more, otherwise a further decline to 3450/25 cannot be canceled in the medium term.
Nifty (17,991.95, +46 + 0.26%) is holding above support at 17,800 and a test of 18,250 can be seen in the next few sessions. There is no impact of the rise in Nifty on the rupee as the latter is more strongly correlated with crude at this time.
Sensex (60,284.31, +148.53, + 0.25%) remains above 60,000, indicating an increase towards 61,000 or more towards 62,000 in the medium term.
Crude prices are stable below the respective resistances of 84-85 (Brent) and 81-82 (WTI) and while they hold there could be a short dip to 81-80 and 78-77 respectively. Gold and silver are stable in the 1740-1780 and 22-23 range. Copper is trading below the crucial resistance at 4.35 / 40 and as long as this holds, a decline to 4.20 / 00 is possible in the near term.
Brent (83.25) is trading below the immediate trend resistance near 84. Although below the 84-85 resistance area, we can expect a drop to 81-80 in the near term. The WTI (80.50) on the other hand may dip towards 78-77 while below 81. We reiterate that we would be cautious at current levels to go long as the upside is likely to be limited.
Gold (1762.40) has risen slightly and has the potential to head towards the higher end of the 1740-1780 range. A pause on each side is necessary to have more clarity on the future direction.
Silver (22.59) also continues to stay in the 22-23 range.
Copper (4.3125) is stable at this time. Immediate resistance at 4.35 and higher at 4.40 may hold for now and produce a drop to 4.20 / 4.00 on the downside. Any break above 4.40 would be crucial and indicate a strong rally ahead. Such a rally seems less likely for now.
The Dollar Index continues to trade higher while it is possible for the Euro to test 1.1525 / 00-1.1493. EURJPY could test immediate resistance near 131.50 and drop from there with USDJPY falling from 114 resistance. The Aussie and Pound are currently lying but could prepare for a sudden movement soon. The USDCNY could drop to 6.44 / 42 while it is below 6.4650. USDINR may be bullish above 75.30 / 3250. Note an immediate resistance close to 75.75.
The Dollar Index (94.35) has fallen from 94.56 and may drop to 94 in the near term. A break above 94.50, if observed and sustained, may eventually push the index up.
The euro (1.1552) rose after falling to 1.1524 yesterday. We may continue to see a decline towards 1.1525 / 00-1.1493 soon.
EURJPY (131.07) eventually managed to rise above 131, dragged down by a weaker yen. Immediate resistance is seen near 131.50 which can be tested before a corrective drop is seen towards 130.50 or below.
The dollar-yen (113.44) was lower from yesterday’s high of 113.79. while below immediate resistance at 114 a short corrective drop to 113.40-113 may be possible.
The Aussie (0.7342) is struggling to climb above 0.74 right now and could trade between 0.74 and 0.7250 in the near term.
The British Pound (1.3613) is not in a position to break above 1.37 and could trade between 1.37 and 1.3550 / 35 in the near term. Sideways consolidation could create momentum for a sharp rise soon to the upside.
The USDCNY (6.4455) looks stable for now and while resistance near 6.4650 holds the pair may move lower to 6.44 / 42 on the downside.
The USDINR (75.51 / 52) closed higher yesterday and although above 75.3250 there is a possibility of a rise to 75.75 to the upside which may hold over the very short term. . Note that there is currently a strong correlation with Brent crude and that a drop in Brent could be in favor of the strength of the rupee. For today, above 75.30 / 3250, the view is bullish on the USDINR.
US Treasury yields have performed well, especially at the end. Key resistances hold up well for now, in line with our expectations, but the yield will need to fall below their near-term supports to confirm a reversal and fall further. CPI inflation data will need to be watched closely to see if it pushes yields down further or goes up. German rates are rising towards their key resistances from where we expect a further decline. The 10Yr GoI remains higher but stable below its significant resistance. We expect a pullback in the coming days. The 5-year GoI shifts downward in the expected lateral range.
The US 2Yr (0.34%), 5Yr (1.07%), 10Yr (1.58%) and 30Yr (2.09%)% dipped well, especially at the far end. 1.65% on the 10Yr and 2.2% on the 30Yr seem to hold for the moment. A fall below 1.5% (10 years) and 2% (30 years) will be necessary to cancel the chances of breaking above 1.6% (10 years) and 2.2% (30 years). Such a drop will then pave the way for a revisit of 1.4% -1.3% (10 years) and 1.85% -1.8% (30 years) that we expected.
German 2-year (-0.67), 5-year (-0.47%), 10-year (-0.09%) and 30-year (0.37%) yields increased further. The 10Yr and 30Yr have respectively entered their resistance zones -0.1% / – 0.05% and 0.35% / 0.45%. We expect this resistance to continue and yields to reverse lower in the coming days. Price action in the coming days will require close monitoring.
India’s 10-year GoI (6.3363%) edged down. We reiterate that 6.35% -6.36% is crucial resistance which is likely to cap the upside and trigger a pullback at 6.25% -6.2% and even lower. In the event of a breakout above 6.36%, a prolonged rise to 6.4% is possible.
The 5-year GoI (5.7008%) is within our expected range of 5.66% to 5.76%. We’ll have to wait for a breakout on either side of the 5.66% -5.75% range to see if the yield can rise to 5.8% -5.85% or drop to 5.62% -5.6 % in the future.