Saturday, April 21, 2018
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Market Morning Briefing: Euro Dipped After Seeing A High Near 1.2355
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STOCKS

Dow (24727.27, +0.47%) and Dax (12307.33, +0.74%) have risen slightly yesterday. Dow looks bearish while below 25000 while Dax may come off while below 12500. The rejection from levels near 12500 has not produced a sharp rejection for Dax and the index is stuck in the 12200-12500 zone. A break on either side would determine the further directional course. Another dip if seen could take Dow towards 24200 and Dax towards 12200.

Nikkei (21380.97, -0.47%) has support just below current levels. While Dollar Yen remains ranged in the 107.50-106.0 region, Nikkei may trade above support with the upper limit near 22500 just now.

Shanghai (3309.83, +0.58%) seems to be trading in the 3350-3230 region and is likely to remain sideways for now.

Nifty (10124.35, +0.30%) has bounced back from levels near 10070 and if that sustains, the index could move up towards 10320 in the coming sessions. Sensex (32996.76, +0.22%) has also bounced a bit and could test 33250 on the upside. The trade region could narrow in the coming sessions.

COMMODITIES

Brent (67.63) has moved up sharply after the API reports suggested a surprise draw of 2.739 million barrels of United States crude oil inventories for the week ending March 16. News states an anticipation of 2.556 million barrels in crude oil inventories—a discrepancy of over 5 million barrels. Brent could test decent resistance near 68 which could produce a slight dip towards 66.

Nymex WTI (63.75) could also test resistance near 64 and come off towards 62.50 by the end of the week.

Gold (1312.80) is headed towards 1300 in the next few sessions. Near term looks weak.

Copper (3.0485) has broken below the support near 3.05 on the daily candle chart and could now come down further to test 3.00. In case 3.00 is able to produce a bounce, the index could head higher towards 3.10, else a break below 3.0, if seen would be vulnerable to a sharp fall in the medium term.

FOREX

Dollar index (90.303), against our expectation, has again moved up, breaching immediate resistance near 90.25-90.30 on the daily candles. It saw a high of 90.45 yesterday and is currently trading below that level, possibly indicating that resistance level on weekly candles near 90.5 could hold. However, at this stage there is also some room on the 3 day candles and daily line chart for the Dollar Index to rise towards resistance near 91.

We again highlight below the importance of the Fed meeting later today:

‘A lot could depend on the US Fed meeting today, where a rate hike of 25 bps is expected. Whether a rate hike and a possible rise in US yields subsequently are positive for Dollar strength or not would have to be seen –the usually positive correlation between bond yields and currency strength has not worked for the Dollar in the past 3-4 months and whether this particular rate hike can reinstate the previous correlation would be something to watch out for in the coming weeks. Our preference is for the negative correlation to continue ie for the Dollar to see a dip.”

Euro (1.2256) – Against expectations, Euro dipped after seeing a high near 1.2355 yesterday and is currently testing support near 1.225 on the daily candles. There is crucial lower support on daily candles, 3 day candles, daily line chart and 3 day line chart near 1.2200-1.2175, which if broken would be bearish for the Euro in the medium term.

The Euro has been seeing sideways movement in the broad 1.215-1.255 zone for the last 8 weeks. We have been saying that a decisive breakout on the upside beyond higher resistance on 3 day candles near 1.255 could be on the cards within the next couple of weeks. The US Fed meeting later today could be the decider on that.

Dollar Yen (106.49) after having tested immediate resistance on daily candles near 106.5-106.6 might see a dip now. Resistance near current levels is also being provided by the 21 days moving average line on daily line chart and the 5 week moving average line on the weekly line chart. In the less preferred case of Dollar strength after the US Fed meeting today, the Dollar Yen could rise further towards resistance (earlier support) near 107 on the 3 day line chart.

We have been saying that the Dollar Yen might be about to turn bearish towards 105 and lower within the next 1-2 weeks. A break of 105, would be crucial since the Dollar Yen hasn’t been able to move below that level for more than a year.

Euro Yen (130.51) is seeing a dip after testing (and slightly breaching) immediate resistance on daily candles near 131.5. There is strong support visible now near 130 on daily, 3 day and weekly candles.

Pound (1.40) had bounced after testing support near 1.38 on 3 day candles last week. It might pause slightly in its upmove if there is re-emergence of global Dollar strength after the Fed meeting. However, in case the Dollar doesn’t strengthen, we could see the Pound test resistance near 1.44 on 3 day candles and line chart in the coming 1-2 weeks.

Dollar Rupee (65.195) is overall bullish while above 65.00. But, upside is limited to 65.40-60.

INTEREST RATES

Global bond yields are expected to react to the Fed meeting today. US yields have already started moving up in anticipation of a rate hike.

US 10 Yr Yield (2.8959), 30 Yr (3.13), 5 Yr (2.696), 2 Yr (2.344):

We repeat yesterday’s comment that: Data releases over the past week have put up a contrasting view of the US economy – CPI, Retail Sales, Wage Growth and Housing Starts data indicated a pause in growth while Capacity Utilization, unemployment claims, Industrial Production and Import Prices data indicated a surge in growth. We expect the US Fed to hike rates today but at the same time strike a balance by not being too hawkish in the press conference. We might be wrong and the Fed could surprise everyone – lets wait and watch.

In our Mar ’18 US Treasury report (available on demand), we keep an upside target of 3.075% for the 10 Year yield, 3.3% for the 30 Yr yield and 2.925% for the 5 Year yield in Apr’18. We also see yields again declining in May-Jun.

Let’s wait for the Fed meeting today to see how bond yields shape up.

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