STOCKS
The surprise 50 basis point emergency rate cut from the US Federal Reserve yesterday seem to have added more panic to the market just now rather than easing the downside pressure. We will have to wait for some time to see how the situation evolves. Dow has tumbled sharply and can test its crucial support in the coming days before reversing higher again. DAX remains vulnerable for further fall. Nikkei is holding above its support but seem to lack strength for a strong bounce. Will need to wait and watch. Shanghai is struggling to get strong follow-through buying and can see a fall-back again. Sensex and Nifty can consolidate above their crucial supports before moving higher eventually.
Dow (25917.41, −785.91, -2.94%) has come-off sharply afer testing 27000. The crucial support level of 24350 is likely to be tested now and we expect the Dow to see a bounce from there towards 27000 again. As mentioned yesterday, a strong rise past 28000 is very much needed to turn the view bullish completely. While below 28000, there is a danger of seeing a fresh fall to 23000 in the second half of this year.
DAX (11985.39, +127.52, +1.08%) failed to sustain the break above 12200 yesterday and has come-off sharply from the high of 12272. The resistance at 12200 is continuing to hold very well and keeps our bearish view intact of seeing 11500 and even 11000 on the downside in the coming weeks.
Nikkei (21110.06, +27.33, +0.13%) is managing to hold above the crucial support level of 20800 but is not gaining momentum to see a strong bounce. A strong close above 21200 is needed this week to ease the downside pressure and take the index higher. While below 21200, a test of 20500 can be seen in the coming days.
Shanghai (2990.80, −2.09, -0.07%) seems to lack strong follow-through buying above 3000 and looks vulnerable to test 2950-2900 on the downside again. As mentioned yesterday a strong rise past 3050 is needed to bring back the bullishness to see 3100-3150 on the upside. We will have to wait and watch the movement for a few days.
Nifty (11303.30, +170.55, +1.53%) is managing to hold well above the crucial support level of 11000. However, it seems to lack momentum to see a strong bounce. As mentioned in the Evening Comments yesterday, a consolidation between 11000 and 11400 is a possibility now before we see a rise to 11500-11600 eventually.
Sensex (38623.70, +479.68, +1.26%) on the other hand can remain in the range of 38000-39000 for some time and then can rise to 40000 levels. . As we have been mentioning over the last couple of days, 37500-37200 is a strong support zone which can limit the downside even if the Sensex declines below 38000 (less preferred) from here.
COMMODITIES
Precious metals rise sharply after FED cut rates by 50bps yesterday as an emergency and surprise move amid spread of Coronavirus and its impact on economy. Crude on the other hand is trading higher on expectation of possible cut in oil production from the OPEC that is scheduled to meet on 5-6th March, this week. Such a cut, if seen could be bullish for crude prices taking it higher from current levels. However, Copper is trading slightly lower today.
The American Petroleum Institute (API) estimated a smaller crude oil inventory build of 1.7mln barrels for week ended 28th Feb’20 as compared to analyst expectation of 3.33mln barrel build. Brent (52.57) and WTI (47.84) trade slightly lower than levels seen yesterday. Brent is expected to trade above 50 just now and possibly see a rise towards 60 in the medium term before again turning lower. The rise could possibly be triggered after the OPEC meets this week. We would keep a close watch for movement from current levels. 50 continues to be crucial support.
WTI on the other hand has similar support near 44 above which it has potential to rise back above 50+ in the near term.
Gold (1645) is holding above support near 1560 but it would be important to see if it faces rejection from 1660-1670 levels just now to see a dip back towards 1610-1600 levels.
Silver (17.24) has risen as expected. We would watch for a possible rejection from 17.50; failure of which could take Silver higher towards 18.50/75 again. For now, we would wait to see price action near 17.50.
Copper (2.5945) is finding difficulty to rise above 2.64/65 just now. We may continue to expect trade in the 2.65-2.52 region for the near term.
FOREX
Dollar Index trades lower but could bounce from support levels indicating Euro to hold below resistance at 1.12. Dollar Yen could bounce back too in the near term. Aussie and Pound have bounced slightly but while Pound could be potentially bullish, Aussie may again sink towards 0.64. Yuan has strengthened and Rupee is expected to see some strength too today but that could be short lived.
Dollar Index (97.22) tested 96.98 yesterday after the FED cut rates by 50p as an emergency move amid Virus and its impact on the economy. While above 97, we may expect a short but corrective upmove towards 98 or higher in the near term.
Euro (1.1160) briefly tested 1.12 yesterday which is a decent resistance and could push down Euro back towards 1.11 or lower in the near term. While below 1.12, Euro could be bearish for the near term.
Dollar-Yen (107.46) continues to trade below 108 but could possibly see some corrective upmnove towards 108.0-108.5 in the near term. We would watch for a bounce in Dollar Index and a possible dip in Gold (refer commodities section above) to support a bounce in Dollar Yen. At the same time if Nikkei manages to see a rise above 21200 (Refer Equities section above), we may expect Dollar Yen to move up too.
EURJPY (119.88) is volatile and is trapped in the broad 121.50-118 region which could hold for some more time. A break on either side is needed to give clarity on further direction from here.
Aussie (0.6607) looks potentially bearish in the near term but could trade in the 0.66-0.64 region for sometime. A sustained rise above 0.66 is needed to turn bullish on Aussie.
Pound (1.2817) has bounced back above 1.28 today and only if it sustains to remain above 1.28, we may look for a rise back to 1.30 or higher in the near term. Watch price action near 1.28, which if holds could negate our earlier view of a fall towards 1.26 mentioned yesterday.
USDCNY (6.9324) has fallen sharply towards 6.90 mentioned yesterday. Watch support near 6.90 to hold in the next couple of sessions.
USDINR (73.30) rose sharply yesterday. While the upside momentum is strongly bullish, we may allow for a short dip towards 72.70/50 before the pair again rallies to 73.30+ levels in the coming sessions. View is bullish for the medium term with a possible corrective dip likely over the next couple of sessions.
INTEREST RATES
The US Federal Reserve surprised the markets yesterday with a 50 basis points emergency rate cut. As a result, the US Treasury yields had tumbled across the tenors. The outlooks for the yields remain bearish and they can move down further in the coming days. The German yields remain lower and are bearish to see further fall. The 10Yr GoI looks mixed in the near-term and could remain in a sideways range.
US 2Yr (0.67%), 5Yr (0.72%), 10Yr (0.98%) and 30Yr (1.60%) Treasury yields have tumbled across tenors. The 2Yr has room to test 0.55% – the next important support to watch on the downside. The 30Yr is heading towards 1.50% as mentioned yesterday. The 10Yr has declined below 1% and can now test 0.60% on the downside. 0.60% is a crucial support which needs to hold in order to avoid a further fall to 0%.
The German 2Yr (-0.83%), 5Yr (-0.81%), 10Yr (-0. 63%) and 30Yr (-0.17%) yields remain lower. The broader bearish view is intact. The 30Yr can test -0.20% and can extend the fall even up to -0. The 10Yr can fall to -0.80% and -0.83%.
The 10YR GOI (6.3420%) is stuck around 6.35% and continues to remain mixed. As mentioned yesterday, the yield can remain in the range of 6.31% and 6.41%. A breakout of this range will then determine the direction of the next move.
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