Monday, February 19, 2018
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Market Morning Briefing: Euro Reached A High Of 1.2475 Yesterday
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STOCKS

Dow (26149.39, +0.28%) was almost stable yesterday. Note that 25700-26000 is a crucial near term support region which may hold, keeping the index range-bound within 26700-25700 levels.

Dax (13189.48, -0.06%) is likely to move down slowly towards 13100-13000 support levels from where a bounce could be expected in the medium term.

Nikkei (23410.66, +1.35%) has moved up from levels above 23000. Although there is some more room on the downside towards 23000-22800 levels, the index may try to move up towards 23800-24000 again in the next few sessions.

Shanghai (3471.28, -0.27%) is headed lower and could target 3450-3400 levels in the near term. View is bearish for the coming sessions.

Nifty (11027.70, -0.20%) has come off below 11040 but is testing interim support near 10980. A break below 10980 is needed to confirm an upcoming short dip towards 10900-10800 in the medium term.

Sensex (35965.02, -0.19%) is also trading just above support at 35750. A break on the downside could initiate a short term dip towards 35000. Near term looks bearish.

COMMODITIES

Brent (68.97) is likely to respect the support near 68 and while that holds, the price could possibly trade in the 72/71-68 region for some time. 68 needs to break on the downside to confirm a down leg which may extend to lower levels of 67-65; but we wait for confirmation before looking at lower levels. For now a bounce from 68 is preferred.

WTI (64.81) has moved up from 64 but has some scope of testing 63.0-62.8 on the downside before again trying to move up eventually.

Brent-WTI spread (4.16) came off sharply from 4.51 seen yesterday. As mentioned, there is room on the downside towards 3.5 and the spread seems to be moving towards that gradually.

Gold (1343.18) has moved up contrary to our expectation of a fall towards 1325/20. That is possibly because of the 21-day MA acting as support (See daily line chart) and while that holds, the price could move up towards 1350-1360 again. As long as the price remains above 1340, we may negate a fall towards 1320 for some time.

Copper (3.2090) is stuck in the 3.25-3.12 region and may trade within this range for another 1-2 sessions before breaking on either side. Support is visible near 3.10-3.15 region and while that holds, the scope for an upside break seems more likely. We may prefer an eventual rise towards 3.25 and higher in the near to medium term.

FOREX

Dollar Index (89.101) continues its ranging between 89.1-89.2 inspite of the Fed maintaining its hawkish tone and indicating that the next rate cut could happen in March’18.US short term yields (see Interest Rates below) have risen significantly since yesterday and we might just see the positive correlation between US yields and Dollar strength return in the coming week. On the weekly line charts, Dollar Index is trading just above long term support near 89 and a gradual rise from here can be expected soon.

Euro (1.2414) reached a high of 1.2475 yesterday and tested resistance on daily candles. The last couple of days have been largely indecisive in terms of directional clarity for the Euro. However on both days, Euro has tried testing resistance on the daily candles and has come off from there subsequently. This might be an indication that a decisive dip towards 1.23 (support on weekly candles) could begin soon.

Dollar-Yen (109.35) as per expectations, is moving up to test resistance near 109.5 on the daily candles. With the Bank of Japan increasing the amount of government debt it will buy, we need to see how yields react to that. As mentioned yesterday, the premium offered by US yields relative to Japanese yields have always impacted Dollar-Yen positively and the same might resume in the days to come.

Euro-Yen (135.77) might move towards 136 in the next couple of sessions before seeing a dip. There is immediate support near 135.0-135.2 on the daily, 3 day and weekly line charts which should continue to hold in the near term.

Pound (1.4193), continues to trade near resistance on the 3 day candles (near 1.42) . If it breaches this resistance, it could move upto the next resistance near 1.44 on the weekly candles and then see a dip.

Dollar-Rupee (63.65) should be ranged between 63.50-80 today morning.

INTEREST RATES

US short term yields have seen a rise to record levels as the Treasury announced larger sales of short dated government debt. This has led to a knee jerk flattening of the yield curve as well.

US 10 Yr (2.7237%), 30 Yr (2.9438%), 5 Yr (2.5374%) & 2 Yr (2.1607%) – The 30 Year yield has dropped since yesterday while the rest have all risen. The rise in 10 Yr has been much lesser while 5 Yr and 2 Yr are now at long term resistance levels near 2.5-2.6% and 2.2% respectively (these resistances are shown on long term charts in our January Treasury report – available on request). Both these resistances are seen on trend lines which join resistance levels over the last 30 years – thereby making us believe that the short term yields shouldn’t rise much further.

Yield spreads have broken support levels as yield curve flattening increases. US 10 Yr-5Yr (0.1863%) is below 0.2% (seen as support on short term charts) and US 30 Yr – 10 Yr (0.22%) has gone below 0.24% (seen as support on long term charts).

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