STOCKS
Blood bath across the Asian markets today and the Dow futures (24549, -1240, -4.81%) has also been knocked down badly. The fear of oil price war has added fuel to the concerns of the corona virus outbreak. Dow could be in danger of breaking below its crucial support level 24350 today. Nikkei and DAX have room to fall further to test their next crucial supports. Shanghai could fall within its broad sideways range. Sensex and Nifty can also extend their down move today.
Dow (25864.78, −256.50, -0.98%) has moved down further on Friday and keep our bearish view intact. As we had mentioned on Friday, a fall to 24350 is likely now. Whether 24350 will hold or not is going to be crucial. A break below 24350 will eventually pave way for a test of 23000 and 22000.
As expected, DAX (11541.87, −402.85, -3.37%) fell to test 11500 on Friday. The outlook is bearish to see a test of 11200-11000 this week from where a bounce is possible. We will be watching closely the crucial support level of 11000 this week which has the potential to halt the current downtrend.
As feared on Friday, Nikkei (19499.22, −1,250.53, -6.03%) has tumbled towards 19500 much faster than we had anticipated. A fall to 19000 and even 18000 looks likely now after which the index can reverse higher again.
Shanghai (2965.38, −69.14, -2.28%) has down to test 2975 again. It can now test 2900 this week on a further fall below 2950. The weekly candles look mixed and suggests a range-bound trade between 2850 and 3075. We will have to wait and see on which side does the index breaks this range.
Nifty (10989.45, -279.55, -2.57%) is under pressure now as it had declined below the crucial support level of 11000 on Friday. A test of 10600-10500 can now be seen this week and the possibility of the fall extending beyond 10500 will need to be seen in the coming days.
Sensex (37576.62, -893.99, -2.32%) is in danger of falling below the crucial 37500-37200 supports as against our expectation on the back of the sell-off in other markets. A break below 37200 can drag the Sensex to 36000 this week.
COMMODITIES
High volatility in commodities especially in the crude market. OPEC production cut deal failure was followed by slashing of official selling prices by the Saudis as a measure to prepare for an increase in its production level above the 10 mln barrel/day mark. Crude prices have plunged to levels below $35 and with the corona virus impact already keeping the prices low, the action by Saudi Arabia could keep the downward pressure on crude prices intact in the near term. Gold trades higher while Silver is stable. Copper trades at crucial support; need to wait and watch to see if the fall would sustain or price could bounce back within the next few sessions.
Brent (33.90) is trading below our long term view of $35 that we had expected to be seen by 2021 (refer to our economic calendar for 2019 and 2020 for the longer term view, soft copy available on request). Although the expected fall has happened a year earlier, we would not look at a sharper fall from here but would look for a bounce in the near term. While below $35, we may or may not see an extension to $33-30 but we would wind up all shorts and wait to look for a bounce in prices as our technical target of $35 has been met.
WTI (30.65) can similarly be near its lows and could bounce back from here. We may or may not see a further fall towards $27-28 but we would prefer a bounce near current levels. Would suggest to wind up all shorts near current levels.
Gold (1698.90) has been rising steadily and could test 1700 on the upside. A break above 1700 if seen and sustains could probably take prices higher towards upper resistance at 1800. We would be cautious at current levels to watch price movement closely.
Silver (17.19) has not seen as much volatility as compared to movement in other commodities. In the longer term we would watch support at 16 and expect prices to remain above 16 and eventually head higher towards 18.00-18.50 again in the near term.
Copper (2.4995) has broken below support at 2.50 and if an immediate bounce from here is not seen, we may expect a further fall towards 2.4-2.3. But we would wait to see if a bounce is seen in the next couple of sessions to turn bearish. For now suggest to wait and watch price action at current levels.
FOREX
Dollar Index tested support and has bounced from there; we may expect some recovery in the near term to higher levels. Dollar Yen trades lower and looks bearish in the near term. Euro trades higher but is likely to trade below resistance at 1.15. EURJPY has crucial support below current levels and could bounce back in the next few sessions. Pound and Yuan has strengthened. It would be important to see if Rupee is able to strengthen or falls back towards 74 or lower.
Dollar Index (95.32) tested a low of 94.88 and is trading higher currently. While crucial support at 94 holds, we may expect the index now to bounce back towards 96+ levels.
Euro (1.1392) tested a high of 1.1496, almost meeting our target of 1.15, before falling from there. It would be important to see if a re-test of 1.15 is seen or the exchange falls from current levels back towards 1.12. Resistance at 1.15 is likely to hold in the near term.
Dollar-Yen (102.89) has broken below support near 106. A further fall towards 100-99 could be possible before a bounce is seen from there.
EURJPY (116.91) has crucial long term support at 116 which if holds could see a bounce in the near term back towards 118 or higher. Near term is bullish while above 116.
Aussie (0.6545) trades below 0.66 and has scope for a test of 0.65 in the near term before a bounce is seen. Downside is likely to be limited below 0.66.
Pound (1.3063) has moved up as expected and could target 1.31/32 in the medium term. Bullish view remains intact while Pound trades above 1.28.
USDCNY (6.9273) has support near 6.90-6.88 in the near term which could be tested before a bounce is seen. Near term looks bearish.
USDINR (73.80) has scope for re-testing 74 or higher in the near term. The impact of sharp fall in crude prices on the exchange is unknown and we would wait to see if USDINR is able to manage a stronger corrective dip from here. Else it may again rise towards 74 and higher (74.20) in the near term.
INTEREST RATES
The fear of oil price war after the OPEC meeting last week failed to agree on an additional supply cut and Saudi Arabia announcing a deep price discount has added fuel to the on concerns pertaining to the corona virus outbreak. As a result, high risk aversion in the market has seen the US Treasury yields tumbling at early trades today. The Treasury yields have room to extend their fall in the coming days. The German yields continue to trade lower and keep our bearish view intact. The 10Yr GoI has declined below its key support and is now bearish for further fall.
The US 2Yr (0.29%), 5Yr (0.38%), 10Yr (0.47%) and 30Yr (0.96%) Treasury yields have tumbled well below the key levels that we had mentioned on Friday. The 10Yr has tumbled below 0.60% and is now in danger of seeing 0% on the downside while it remains below 0.60%. The 30Yr on the other hand looks vulnerable to test 0.10% in the coming weeks. Intermediate support for it is at 0.70%
The German 2Yr (-0.88%), 5Yr (-0.87%), 10Yr (-0. 71%) and 30Yr (-0.29%) have declined further and keep our bearish view intact. As we had mentioned last week, the 10Yr can fall to -0.80% and -0.83%. The 30Yr has come closer to our preferred level of -0.30%. We will have to wait and see if it can bounce from this support or not. A break below -0.30% will pave way for a further fall to -0.50%
The 10Yr GoI (6.1846%) has declined below the 6.20%-6.19% support zone on Friday. Our bearish view remains intact for a test of 6.10% on the downside now. A break below 6.10% open doors for a test of 6% and even lower levels in the coming weeks.
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