Market Morning Briefing: Dollar Index Has Bounced Well From 89.20 Over The Last Couple Of Sessions

STOCKS

Equities retain their strength but are coming closer to their crucial resistances. Dow is at 31000 and can have limited room on the upside from here upto 31300-31500. DAX has an immediate resistance at 14000 and then at 14300-14500. Nikkei is just near its key resistance level of 28000 and Shanghai is coming closer to the important hurdle of 3600. Sensex and Nifty are not getting strong follow-through rise over the last couple of days and need to be watched closely to get a cue on whether the top is in place. Overall, we would prefer to turn cautious again on equities although there is some room to see an extended rise from current levels. We will have to watch closely the movement over the next one week or two.

Dow (31041.13, +211.73, +0.69%) has closed just above 31000. As mentioned yesterday there is room on the upside in the weekly and 3-day charts upto 31300-31500 although 31000 itself is a strong resistance on the long-term charts. Considering the current momentum, we would allow for a rise to 31300-31500 after which a sharp corrective fall is possible. Only a strong break above 31500 will negate our view of seeing a reversal.

DAX (13968.24, +76.27, +0.55%) remains higher and can see an extended rise to 14300-14500 on a strong break above 14000. We expect the index to reverse lower thereafter towards 14000 initially and then even deeper eventually.

Nikkei (27934.90, +444.77, +1.62%) has risen further sharply and is coming closer to 28000 as expected. The level of 28000 is a crucial resistance which will need a close watch. We expect Nikkei to reverse lower from 28000 towards 27000-26500 in the coming weeks and even lower over the medium-term.

Shanghai (3582.17, +5.97, +0.17%) is moving up towards the crucial resistance level of 3600 as expected. As mentioned yesterday, 3600 will need a close watch and a strong reversal from there can drag the index lower to 3450-3400. A strong and decisive break above 3600 (less likely to be seen immediately) will be very bullish from a long-term perspective.

Nifty (14137.35, −8.90, +0.06%) and Sensex (48093.32, −80.74, -0.17%) seem to lack strong follow-through buying although they sustains above 14000 and 48000 respectively. Indeed they failed to move up sharply yesterday even after a strong rise in the Dow. So the price action today will have to be watched very closely. If a similar movement, as was seen in the last two days gets repeated today as well then that would be an indication of a top in the forming and a correction is on the way. 14000 on the Nifty and 48000 on the Sensex are immediate important psychological supports to watch.

COMMODITIES

Overall crude prices look bullish while the strong Dollar has kept Gold and Silver lower. Gold and Silver could both test 1900 and 27 which are immediate supports from where a bounce looks possible in the medium term. Copper has soared high and looks bullish towards 3.80 on the upside.

Brent (54.69) and Nymex WTI (51.15) have both risen and could be headed towards $55 and $52 respectively. A further break above these levels would be bullish for the crude prices in the medium term. Watch for a possible break above 55 (Brent) and $52 (WTI) in the near term.

Gold (1912.50) trades lower today but while below 1940, we may expect a test of support at 1900 before again bouncing back to higher levels. Also a stronger Dollar keeps Gold low and could continue so for some more time.

Silver (27.20) is trading slightly higher but while above support at 27, overall view remains bullish for the medium term.

Copper (3.7295) has been rising well and could continue to move up towards 3.75-3.80 on the upside. Immediate view is bullish.

Copper (3.6690) continues to trade higher. A rise towards 3.80 cannot be negated in the near term.

FOREX

Strong Dollar has put a pause on most currencies and may continue for sometime. While Dollar Index is likely to head towards 91.0-91.50, it could drag down Euro towards 1.2150-1.20 before a sharp bounce is again seen. Dollar Yen could test 104.0-104.50 before coming off. Pound and Aussie look bearish for the near term. USDCNY has risen but while below 6.50, view is bearish. USDINR has broken above 73.25 yesterday and could be headed towards 73.50-73.70 in the next few sessions.

Dollar Index (89.868) has bounced well from 89.20 over the last couple of sessions. While above 89.0-89.20, we may expect a corrective bounce towards 91.0-91.50 before again resuming the longer term downtrend. Overall the Dollar Index could move up over the next 1-2 weeks.

Euro (1.2258) has fallen from 1.2345 seen yesterday exactly from our mentioned resistance at 1.2350. While below 1.2350, we may expect a corrective dip towards 1.2150-1.2100 or a maximum of 1.20 on the downside to be followed by a sharper rise towards 1.23 or higher in the longer run. Immediate view is bearish while below 1.2350.

EURJPY (127.29) has just broken above our mentioned levels of 127.27, indicating a break above the broad sideways range of 125.75-127.27 and now looks bullish for a rise to 128-129.50 on the upside.

Dollar-Yen (103.85) has risen in line with the rise in dollar Index and has scope for a rise towards 104.0-104.50 in the near term before another decline is seen in the medium term. Immediate view is bullish but likely to be limited to 104.50.

Aussie (0.7758) has dipped too and could test 0.76 before again bouncing back to higher levels

Pound (1.3559) needs to remain above 1.3530 to again move up towards 1.36 or higher. Failure to sustain above 1.3530 would drag the Pound down towards 1.35 or even lower in the medium term.

USDCNY (6.4667) has risen a bit as 6.4294 is holding well for now. While below 6.50, we do not negate a possible dip back towards 6.40/38. Unless the pair moves up sharply above 6.50, we may expect a rejection from 6.50 in the near term.

USDINR (73.33) has broken sharply above 73.25, moving on the upside as support near 73.00-73.10 seems to have held well. While above 73.25, there is scope for a rise towards 73.50-73.70 on the upside; 73.50 being an initial resistance. Watch price action near 73.50 over the next few sessions.

INTEREST RATES

The US Treasury yields have risen further and are keeping our bullish view intact. Strong sure in the equities continue to support the yields. The German yields remain stable and are likely to reverse lower again in the coming days as the resistances ahead can cap the upside. The 10Yr GoI looks mixed and can reverse lower again after testing its immediate resistance.

The US 2Yr (0.14%), 5Yr (0.47%), 10Yr (1.09%) and the 30Yr (1.87%)Treasury yields have risen further sharply. The bullish view is intact of seeing 1.20%-1.25% (10Yr) and 1.90%-1.95% (30Yr, revised up from 1.85%-1.90% mentioned yesterday) on the upside. Thereafter we see high chances for the yields to reverse lower again. So the price action in the 1.20%-1.25% (10Yr) and 1.90%-1.95% (30Yr) will need a close watch.

The German 2Yr (-0.71%), 5Yr (-0.74%), 10Yr (-0.53%) and the 30Yr (-0.14%) yields remain stable. Our view remains the same. We expect the upside to be capped at -0.50% (10Yr) and -0.10% (30Yr) from here. The yields are likely to reverse lower again to test -0.60% (10Yr) and -0.20% (30Yr) on the downside and keep the broader bearish view intact. Only a sustained break above -0.50% (10Yr) and -0.10% (30Yr) will negate this bearish view.

The 10Yr GoI (5.8934%) rose to 5.9146%, but had come-off sharply from there. The immediate outlook is mixed. From a broader picture, we expect the upside to be capped at 5.94% and the 10Yr GoI is likely to retest 5.86%-5.84% on the downside.