Market Morning Briefing: Euro Rose Sharply Above 1.21 As The Dollar Weakened After The FED Policy Statement

STOCKS

Equities continue to trade mixed. Dow seems to be turning around gradually. The level of 33500 is very crucial to watch if it fails to rise past 34000 from here. DAX remains stable and mixed above 15200. The chances of seeing 15500-15700 on the upside is still alive before witnessing a strong reversal. Nikkei is closed today. It remains stable within its 28000-31000 range. Shanghai is attempting to revisit 3500 – the upper end of its 3350-3500 range. We expect the range to remain intact. Sensex and Nifty have surged breaking their range on the upside contrary to our expectation to see a fall-back. The outlook is bullish and a further rise is possible in the coming days.

Dow (33820.38, −164.55, -0.48%) has been inching down gradually over the last couple of days. This is reducing the chance of seeing 35000 on the upside. As we have been mentioning 33500 is an important support. A break below it and a subsequent fall below 33000 will be bearish to see 32000-31000 on the downside. The price action in the coming days will need a close watch.

DAX (15292.18, +42.91, +0.28%) continues to trade stable above 15200 and looks mixed. Our view remains the same. 15500-15700 can cap the upside from here. We expect DAX to fall below 15000 towards 14500-14000 in the coming weeks. But whether this fall will happen from here itself or after a rise to 15500-15700 is not very clear.

Nikkei (29053.97) is closed today. It continues to trade stable around 29000. We expect it to remain in a range of 28500-30500 (narrow) or 28000-31000 (broad).

Shanghai (3462.03, +4.96, +0.14%) is attempting to move up towards 3500 again. We expect 3500 to cap the upside and keep the 3350-3500 range intact for some more time.

Contrary to our expectation, Nifty (14864.55, +211.50, +1.44%) and Sensex (49733.84, +789.70, +1.61%) have surged past 14700 and 49000 respectively. The outlook is bullish now to see 15000-15200 (Nifty) and 50500-51000 (Sensex) in the coming days. Our earlier bearish view stands negated now.

COMMODITIES

Most commodities strengthen on Dollar weakness after the FED policy statement. Crude prices have moved up but could face rejection near 67-70 on Brent and 65-67 on Nymex WTI soon. Gold looks sideways ranged above 1760 and could remain so for sometime before further rally is seen. Silver is bullish towards 27, a break above which could take it higher towards 28-29 in the longer run. Copper has risen sharply and could test 4.60 this week. Thereafter we would wait to see if it faces rejection from 4.60 or continues its upward rally for higher targets.

Brent (67.69) and WTI (64.23) continue to move up from levels seen yesterday but be careful to look for a possible rejection from 67-70 on Brent and 65-67 on WTI. The rejection could bring back prices down in the next few sessions.

Gold (1786.80) has moved up slightly and seems to be ranged while above 1760. We may expect Gold to remain sideways for sometime before rallying upwards again.

Silver (26.49) has moved up sharply and could be headed towards 27. Thereafter a break above 27 would be needed for it to sustain its upmove and target higher levels of 28-29.

Copper (4.5215) has risen sharply and could test our expected 4.60 over today and tomorrow. Immediate view is bullish.

FOREX

Dollar weakened sharply in line with market expectations after the FED kept rates unchanged. The FED is looking at strengthened economic activity and employment amid the second wave of Covid as the worse hit sectors of the economy has improved since last year. Euro has risen well and could head towards 1.22 or even higher. EURJPY may rise towards 132-135. Aussie and Pound also look bullish as they attempt to break above crucial levels of 0.78 and 1.40. The rise needs to sustain to take them further up. USDCNY could test .46 before bouncing back else it could fall towards 6.44. USDINR has scope to test 74.00-74.20 while below 74.40.

Dollar Index (90.506) has come down to test the lower end of the 91.50-90.50 range that we have been mentioning for quite some time. While below 91, if the index manages to break and sustain below 90.50, we may have to open up chances of a fall to 90 before a corrective bounce takes place.

Euro (1.2140) rose sharply above 1.21 as the Dollar weakened after the FED policy statement. This bounce back above 1.21 is crucial and could establish a firm base for further upside towards 1.22-1.24 in the medium term. The rise is likely to continue in Euro while above 1.21.

EURJPY (131.75) continues to move up and while it sustains above 131, there is scope for a rise to 132-135 in the longer run.

Dollar-Yen (108.50) tested 109.08 and has sharply come off from there as the pair has not been able to sustain above 109 exactly in line with our expectations. While 109 holds, there is scope for a fall towards 108 initially and then towards 107.Immediate view is bearish.

Aussie (0.7802) has been pulled up by Dollar weakness after the FED statement. While the currency attempts to break above 0.78, if it manages to sustain higher, we may expect a rally towards 0.79 in the near to medium term.

Pound (1.3956) has surprisingly risen and could test 1.40. A decisive break above 1.40 is needed to make the currency stronger and take it higher towards 1.41. Watch price action near crucial levels of 1.40.

USDCNY (6.4691) may test 6.46 and if the pair is unable to manage a bounce from there, it could be vulnerable to a further fall towards 6.44 before a bounce sets in. Note that the pair is headed towards the crucial long term support near 6.42/40. That said, downside could be limited in the longer run.

USDINR (74.3550) broke below 74.40 as expected, falling towards 74.30/25 as mentioned yesterday. Looking at the falling momentum, there is further scope for a fall towards 74.20/74.00 if the pair remains below 74.40/30 before a bounce is seen in the next few sessions. Overall the current fall could extend towards 74 this week. Failure to sustain below 74.40/30 could take it back towards 74.70/80.

INTEREST RATES

The US Treasury yields have dipped at the near-end and the far-end remains stable. There is no change in the stance of the US Federal Reserve. The Fed yesterday left the rates unchanged and will continue with its asset purchase as long as needed. The Treasury yields are holding above their crucial support and will have to see if they can manage to rise in the coming days. The German yields have moved up and are coming closer to their crucial resistances. A reversal is possible while the upcoming resistances hold. The 10Yr GoI remains bearish to test 6% and 5.9% on the downside.

The US 2Yr (0.16%) and 5Yr (0.85%) Treasury yields have dipped while the 10Yr (1.61%) and 30Yr (2.29%) remain stable. Our view remains the same. A strong break below 1.5% (10Yr) and 2.2% (30Yr) is necessarily needed to indicate a trend reversal. While above 1.5% (10Yr) and 2.2% (30Yr) a rise back to 1.8% (10Yr) and 2.5% (30Yr) cannot be ruled out.

The German 2Yr (-0.69%), 5Yr (-0.59), 10Yr (-0.23%) and the 30Yr (0.31%) yields have moved up. The 10Yr and 30Yr are coming closer to their key resistance levels of -0.20% (10Yr) and 0.35% (30Yr). Inability to break these levels can drag the yields lower to -0.30%/-0.35% (10Yr) and 0.20% (30Yr) in the coming weeks. The price action in the coming days will need a close watch.

The 10Yr GoI (6.0541%) remained stable yesterday. Our bearish view of seeing 6% now and 5.9% eventually in the coming weeks remain intact. Immediate resistance is at 6.08%.