STOCKS
The surprise move from the US Federal Reserve to cut rates by 100 bps from 1%-1.25% to 0%-0.25% and announce a quantitative easing program does not seem to have cheered the markets so far. The Dow Futures is trading sharply lower by over 4% and most of the Asian indices are trading in red. Will the sharp recovery seen on Friday is going to be short-lived? We will have to wait and see. But for now the long-term supports are holding very well in line with our expectation on the Dow, Sensex and Nifty. We prefer them to continue to hold. The movement in the major indices this week will be very crucial.
Dow (23185.62, +1985, +9.36%) has risen-back very well and the crucial 21000-20800 support is holding well in line with our expectation. We will have to see if it manages to sustain above this support and rise further to 24500 or not. A break below 20800 can drag the index lower to 18500-18000. But as mentioned on Friday we see this broad 21000-18000 as a strong long-term support from where the current downtrend can reverse.
Though DAX (9232.08, +70.95, +0.77%) has bounced back above 9000, it continues to look weak. As such the index continues to remain vulnerable for a fall to 8350-8150 while it remains below the crucial resistance levels of 10000 and 10500.
The bounce-back move on the Nikkei (17449.59, +18.54, +0.11%) from Friday’s low of 16690 seems to be lacking strength. 16500 is a crucial support to watch now which is holding well as of now. A consolidation above this support for a few days could be a good sign to see a strong reversal going forward.
Shanghai (2833.13, −90.36, -3.09%) has bounced sharply after testing 2800 on Friday but has to rise past 2900 decisively to become positive. While 2900 holds, a fall to 2800 and even 2750-2730 is still possible in the coming weeks after which the index can bounce back again.
Nifty (9955.20, +365.05, +3.81%) and Sensex (34103.48, +1325.34, +4.04%) have risen sharply on Friday recovering all the intra-day loss. The 9000-8000 support zone on the Nifty and 31000-30000 on Sensex are holding very well. Though the possibilities of coming down to test these supports again cannot be ruled out, we expect the indices to sustain above these supports and consolidate in the near-term and then move higher eventually.
COMMODITIES
Crude prices fell again following another unscheduled interest rate cut by 1% bringing down the rate to zero. Crude price trades lower and is likely to consolidate below $40 in the near term while we watch crucial support at $30. Gold and Silver looks bearish and could head towards lower supports. Copper on the other hand is headed towards long term support near 2.40/35 which needs to hold to bring back bulls into the picture for the near to medium term.
Brent (32.90) and Nymex WTI (31.18) have dipped and is likely to remain near lower levels for some more time. We continue to watch crucial support near $30 on Brent and $30-27 on WTI which are likely to hold in the near term. While above support levels, we may expect at least some ranged trade if not a sharp bounce from here.
Having broken below 1580-1560, Gold (1543.80) now looks bearish for a fall towards 1480 unless an immediate pull back is seen that take prices back to 1580+ levels. Near term is bearish.
Silver (14.71) is likely to face some support in the 14.00-14.35 region in the near term from where a bounce could be expected towards 16 in the coming weeks. Watch price action on a fall to 14.
Copper (2.4505) has bounced from the upper end of the support range of 2.40/35 mentioned on Friday. While above long term supports near 2.35/40, we may negate a fall to 2.20 mentioned on Friday and instead look for a rise from current levels.
FOREX
Dollar Index has tested crucial resistance and could come off from there while Euro may rise from 1.1050. Aussie and Pound looks weak for the near term. Dollar Yen and EURJPY have risen. Yuan looks weak. With the Corona virus cases now in India, it has to be seen if the currency weakens again in the near term or if a top is already in place.
Dollar Index (98.34) tested 98.81 before coming off slightly from there. While below important resistance at 99, we may expect some a dip towards 97.00-96.50 in the near term. View is bearish while below 99.
Euro (1.1109) is holding above support near 1.1050 for the last 3-sessions and while that holds, the exchange could find some difficulty to fall below 1.1050 just now. With crucial resistance on dollar Index holding and pushing it lower, we may expect a bounce in Euro in the near term while above 1.1050.
Dollar-Yen (106.96) has risen sharply from levels above 104 in line with the rise in Dollar Index. A further but slow rise towards 110-112 is likely to be on the cards for the near term.
EURJPY (118.89) saw a sharp rise from 117 to 120.5 on Friday. Broad trade region is likely to be seen in the 117-120.50 range for the near term, both being immediate support and resistance levels.
Aussie (0.6141) has fallen and could test interim support near 0.60 from where a bounce could be expected. Failure to bounce from 0.60 could take it lower towards 0.55 in the near term before the expected bounce takes place.
Pound (1.2334) is headed towards support at 1.20 as it breaks below 1.25 mentioned in our previous edition. Vies is bearish for the near term.
USDCNY (7.0024) trades above 7.00 but could be limited to 7.03 in the near term before a fall is seen again from there.
USDINR (73.93) is likely to rise again above 74 to test 74.10/15 during the day but we would be cautious while higher resistance at 74.48/50 holds. Only a strong break above 74.25 will bring back the chances of seeing 74.48 levels again.
INTEREST RATES
The week has begun on a complete surprise note for the bond market. The US Federal Reserve has cut rates by another 100 bps from 1%-1.25% to 0%-0.25% and also has announced a $700 billion asset purchase program (quantitative easing). The move has come just a few days ahead of the Fed’s meeting scheduled this week on Wednesday. The US Treasury yields have given back all the gains made on Friday in its early trades today and could resume its downtrend in the coming days rather than extending their corrective rally mentioned on Friday. The German yields have bounced from their key supports and has chances to move further higher. The 10Yr GoI can move up in the near-term before reversing lower again.
The US 2Yr (0.27%), 5Yr (0.40%), 10Yr (0.66%) and 30Yr (1.29%) yields have fallen sharply across tenors on early trade today. The chances of seeing 1.2% on the 10Yr and 1.5% on the 30Yr stands negated now. The yields are likely to fall towards 0.4% (10Yr) 1.1% (30Yr) again in the coming days. From a bigger picture, the chances of the 10Yr testing even 0% on the downside cannot be ruled out now if the current downmove breaks below 0.40% eventually.
The German 2Yr (-0.91%), 5Yr (-0.76%), 10Yr (-0.55%) and 30Yr (-0.21%) Yields have risen back sharply from their crucial supports. It will have to be seen if they can sustain this bounce. The 10Yr has to sustain above -0.60% in order to move further higher towards -0.40% this week. The 30Yr has to breach -0.20% to avoid a fall-back again and rise towards 0%. We will have to wait and watch the movement for a couple of days to get a clear picture.
The 10Yr GoI (6.3224%) has risen sharply on Friday and has closed on a strong note. The yield can breach 6.35% and extend the current upmove to 6.40% and 6.45% while it sustains above 6.20%. Thereafter we may see the yields coming down again.
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