STOCKS
Wild swings in the US markets overnight as Trump slashed fresh tariffs on China. The surprise move from Trump has caused jitters in the market increasing concerns over the progress of the US-China trade talk. Asians are also bleeding on early trades and the same could spill-over the Indian markets. Will China retaliate and make the situation further worse? We will have to wait and see.
Dow (26583.42, -280.85, -1.05%) has tumbled towards 26600 in line with our expectation. There is support near current levels and an intermediate bounce to 27750-27900 cannot be ruled out. But as mentioned yesterday, the current downmove has the potential to take the Dow lower to 26000 in the coming weeks.
DAX (12253.15, +64.11, +0.53%) is continuing to hold above its support at 12100 but may give back its gains on the back of the sharp sell-off that is being seen today. A break below 12100 can drag it to 12000 and even 11800 going forward. But if DAX continues to hold above 12100 amid these jitters, it can rise further to 12300-12400.
Nikkei (21046.04, -494.95, -2.30%) has come-off sharply below 21500 and is bearish to test 20800-20750 on the downside. Resistances are at 21250 and 21400.
Shanghai (2864.72, -44.04, -1.51%) has broken below the key support level of 2880. A close below 2880 today and a subsequent fall below 2850 will be bearish to test 2800 and 2770 on the downside going forward.
The support at 10900 has held well on the Nifty (10980, -138.00, -1.24%) yesterday but the index may fall-back again taking cues from the global markets. A break below 10900 can drag it to 10800 – the next crucial support which we expect to hold and trigger a bounce.
Sensex (37018.32, -462.80, -1.23%) can fall below 37000 targeting 36500 on the downside from where a bounce is possible. Near-term resistance is at 37500 which has to be broken for the Sensex to get a breather.
COMMODITIES
Dollar strength continues to keep commodities lower. While crude prices and Copper could test support below current levels and could bounce back in the near term, Gold and Silver could trade sideways.
Brent (62.09) and Nymex WTI (55.06) are trading lower on Dollar strength breaking below mentioned supports near 62.50 and 56.80 respectively. In case we see a break below 62 and 55, it could target support near 60-59 and 54-52 on the downside.
Gold (1444.50) and Silver (16.23) have moved up after dropping sharply yesterday. We would wait to see if resistances near 1460 and 16.60 hold respectively. Near term could see some ranged movement within the broad 1460-1400 on Gold and 16.60-15.75 on Silver.
Copper (2.6265) has come off sharply below our expected 2.66 support but downside within the current move could be limited just now. Support near 2.62 could produce a bounce in the coming sessions taking Copper prices back towards 2.66/68.
FOREX
Watch crucial resistances on Dollar Rupee and Dollar Index and supports on Euro, Aussie and Pound near current levels. Emergence of trade-tensions between US-China and announcement of fresh tariffs on Chinese goods could keep the Yuan under pressure. Euro Yen could be under strong bear influence unless it bounces back immediately from current levels. News also stated that Japan has removed South Korea from its “white-list” of exporter countries to take effect from 28th Aug. We would have to see if this could trigger any volatility in the currencies.
Dollar Index (98.30) tested exactly the trend resistance on the daily candles at 98.93 and has come off from there. This is crucial and if the fall sustains in the near term, the index could dip towards 98.00-97.75 in the coming sessions.
While resistance on the Dollar index holds, Euro (1.1094) is also likely to trade above 1.10 in the near term. Note that 1.10 is an important support just now and is likely to hold.
Dollar-Yen (107.06) has fallen sharply from an intra-day high of 109.32. The currency pair could not sustain the rise above 109 and while below 109, there could be some scope of testing 106.50 or even 106 on the downside before Dollar-Yen starts to rise back again. Overall 106-109 broad region could see movement in the near term.
Euro-Yen (118.58) has come down below our expected support near 118.82. While below 118.82, it could possibly indicate strong bearishness targeting 115-116 on the downside. Only an immediate bounce from here could prevent a further fall from current levels.
Aussie (0.6807) has come down in line with our expectation to test immediate support near 0.68. While support near 0.6750-0.6800 holds, Aussie could bounce back towards 0.69 and higher in the near term.
Pound (1.2106) continues to trade low. We stick to our support near 1.21 and 1.20 which if holds could produce a bounce towards 1.22/23 in the near term. Near term bounce could be on the cards from 1.21-1.20 levels.
USDCNY (6.9339) has broken on the upside above 6.90 as trade tensions between US and China re-emerge. The currency pair shot up on news of the announcement from Trump stating to impose 10% tariffs on $300bn Chinese goods from 1st September. While above 6.90, there is scope of testing 6.95-7.00 in the medium term.
USDINR (69.07) tested 69.25 in line with our expected daily resistance coming off sharply from three. While we expect 69.25 to hold, we may see some trade between 69.25-68.90 in the near term. Only if a break above 69.25 is seen, we may have to consider 69.50 on the upside, but that is less preferred for now while the pair holds below 69.25.
INTEREST RATES
Trump’s surprise announcement of new tariffs on Chinese goods has triggered a sharp fall in the yields as markets turn more risk averse and move away from risky assets towards bonds. The US Treasury yields have tumbled across tenors and have negated the near-term rise which we have been expecting for some time. The Treasury yields have room to fall further in the near term. The German yields have also declined in line with our expectation and keeps the bearish view intact.
The US 2Yr (1.72%) and 5Yr (1.67%) Treasury yields have tumbled below their keys support levels of 1.80%. The 5Yr has room to test 1.60% and even 1.55% on the downside while it remains below 1.75% now. The 10Yr (1.88%) has declined sharply below the 2% mark and can test its support at 1.80% in the near term from where a bounce to 1.9% is possible. The 30Yr (2.43%) has support at 2.40% which has to hold to avoid further fall to 2.35% and produce a bounce to 2.47%-2.50% again.
The German 2Yr (-0.79%), 5Yr (-0.72%) and 10Yr (-0.45%) were down 3 bps each while the 30Yr (0.09%) was down 5 bps. The 10Yr has declined much beyond our expected level of -0.40% mentioned yesterday and can now test -0.52%. The 30Yr has dipped just below our expected level of 0.10% and can test the immediate support at 0.7% from where a bounce is possible.
The 10Yr GoI (6.4224%) inched higher above 6.40% yesterday as expected. It has to sustain above 6.40% to test 6.45%-6.47% on the upside. A dip below 6.40% can drag it to 6.35% and 6.30% again.
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