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Market Morning Briefing: Dollar Yen Has Broken Below 110

STOCKS

Global indices are to be watched carefully, as the New Year could bring erratic moves. Nikkei and Shanghai are closed for today.

Dow Jones (23327.46, +265.06) closed Monday with a rise. It would be crucial to watch the limit of 23400 which if breaks may lead to bullishness in next few session. Support is seen at 21700, the December low.

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Dax (10558.96, +177.45) is in an overall bearish trend while below 10900. It may/may not bounce till 10900, but such a bounce may attract fresh selling.

In line with expectation, the Sensex (36254.57, +186.24) and Nifty (10910.10, +47.55) look bullish targeting the immediate resistances at 37000 and 11100-200 respectively.

Kospi(2041.04,+12.60) looks bearish for now, while below 2050.

COMMODITIES

Commodities are more or less stable but could face resistances that could hold and push the prices lower in the near term. View is bearish for the next 1-2 weeks.

Gold (1284.10) and Silver (15.44)are trading higher but has important resistances at 1290 and 15.90-16.0 respectively which are likely to hold and push the commodity prices down in the near term. A corrective dip towards 1270 and15.30-15.00 looks possible in the medium term.

Copper (2.6575) is likely to test 2.60 and trade within 2.60-2.70 for a few sessions.

Brent (53.54) and WTI (45.31) are in a very narrow and sideways movement and could remain so for another 1-23 sessions before a sharp move on either side is seen. For now Brent and Nymex WTI has immediate daily channel resistance at 56 and 47.50 respectively and could come off from there towards 48 and 42 respectively. Near term looks bearish.

FOREX

Currencies are all mixed. While we wait for confirmation of price direction on dollar Index and Euro, the Yen is trading strong and Pound and Aussie seem to be testing crucial levels, a break on either side would decide the future direction for the month. Dollar-Rupee looks bearish.

Dollar Index (96.18) tested 95.65 yesterday before closing at higher levels. Currently trading above 96 again, it would be important to see if the index sustains a rise above 96 and moves up eventually towards 98. Corresponding resistance on the Euro (1.144) near 1.15 is also strong and is likely to hold, pushing Euro down towards 1.13-1.12 in the medium term.

We prefer a rise in Dollar Index above 98 in the medium term and 1.15 to hold on Euro. Any movement against this view would force us to revisit our targets.

Dollar Yen (109.68) has broken below 110 and is bearish for the near term towards 108-107 from where a decent corrective upmove could be seen. At current level, the currency pair is testing 50% retracement levels of the rise from 104.629 (Mar’18) to 114.54 (Oct’18). While the bears are in control, a further fall towards 108-107 is on the cards.

Euro-Yen (125.58) is also down sharply and could re-test the May’18 low of 124.62 on the downside before again bouncing back from there. While we prefer a bounce from 124.62, a break on the downside, if seen could make it vulnerable to a sharp fall in the medium term.

Pound (1.2739) tested weekly resistance at 1.2850 on the upside before coming off from there. While the 3-day and weekly resistance holds, Pound could come off towards 1.24 or even lower in the medium term.

Aussie (0.7042) is trading at very crucial levels. There is horizontal support at current levels coming from Oct’18 and only if that holds, we could see a bounce back towards 0.73 or higher in the medium term. Failure to sustain above current levels could take it lower keeping the 2018-downtrend intact.

Dollar Rupee (69.4575) finally broke below 69.60 confirming near term bearish view as expected. A fall towards 69.20-69.00 is on the cards for the near term while it remains below 69.60.

INTEREST RATES

Further dip in the US 2Yr (2.49%, from 2.52%). The 5Yr (2.51%), 10Y (2.68%) and 30Yr (3.01%) are all trading lower as well. Given the overall bearish sentiment regarding global growth, the market expectations on Fed Fund rates says that the Fed will not raise rates till as far down as October. We expect the current bearish sentiment to remain in play in the near term.

The 10-2Yr Spread (0.19%, down from 0.20%) continues to trade below the important+strong Resistance 0.22%. While so, we may look for a fall back down towards 0.16% in the near term.

The German-US 2yr Spread (-3.12%) can rise towards -3.00% as the US Yields fall further. But there is a strong Resistance there, which could push the Spread down again.

As hinted at, the Indian 10yr GOI (7.422%) is moving up, in a corrective bounce, towards 7.45-50%. The longer term trend points down towards 7.10-00%, but may take a bit of time.

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