Saturday, April 21, 2018
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Market Morning Briefing: The US Fed Raised The Benchmark Funds Rate From 1.5% To 1.75%
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STOCKS

Dow (24682.31, -0.18%) was stuck in the 25000-24600 region yesterday mostly in the whipsaw mode, unable to decide on which direction to take. While below 25000, the index looks bearish for the next couple of sessions targeting 24400 on the downside.

Dax (12309.15, +0.01%) has not been able to break on either side of the 12200-12400 region and may continue so for this week. While below 12400, medium term looks bearish and may eventually lead the index towards 12100 or lower.

Nikkei (21475.50, +0.44%) came down to re-test the immediate support levels also led by a stronger Yen. The support near 21000 is not able to create a sharp upmove beyond 22500 and while the Yen continues to strengthen, there could be some scope for Nikkei to come below 21000 soon.

Shanghai (3252.84, -0.86%) has fallen sharply and could gradually come down towards 3200. Near to medium term looks bearish.

Nifty (10155.25, +0.31%) is likely to remain stuck in the 10260-10020 region for a few sessions. Bias is towards a down move.

Sensex (33136.18, +0.42%) is also likely to face some resistance near 33500 and may come off from there towards 32750 in the near term. Thereafter a break on the downside looks more probable.

COMMODITIES

After the API report, it was now the EIA report yesterday which confirmed a fall by 2.6mln barrels in the US crude inventories last week to 428.31mln barrels. This further boosted the crude prices pushing them higher. Also note that the current weakness in the Dollar if continues could lead to a potential rise in the demand for crude.

Brent (69.51) and Nymex WTI (65.23) both rose sharply breaking the immediate resistance on the daily candles. Current levels are corresponding to the previous highs but if the oil prices sustains to break above current levels, we could see some more upside for the week before a corrective dip sets in.

Gold (1330.50) came up from levels near 1300 but only on a rise above 1340 we may focus higher levels of 1350-1375 region. .

Copper (3.0710) has bounced from just above 3.00 levels and we need to see if that sustains. If the price falls back towards 3.0 in the coming sessions, it could indicate some weakness in the coming sessions.

FOREX

The US Fed raised the benchmark funds rate from 1.5% to 1.75% and also struck a less hawkish tone in the press conference which followed, by signaling only 2 more rate hikes in 2018 (as opposed to the anticipation for 3 more hikes this year). As we had been expecting, this moderation in hawkishness has caused the Dollar to weaken.

Dollar index (89.533) has broken below support near 89.75-89.80 on the daily candles and is now near support on weekly line chart near 89.3-89.5. As we have mentioned earlier, this is a crucial support level whose break could lead to medium term bearishness for the Dollar. The next target on the downside (in case a break of 89.3-89.5 happens) would be support on daily candles near 88.5.

Euro (1.2360) again bounced from support on daily candles near 1.225 yesterday and is now testing immediate resistance on daily candles near 1.236-1.237. A breach of this resistance would take the Euro towards higher resistance level on 3 day candles near 1.255-1.260. This is a crucial level, whose breach could imply medium term bullishness for the Euro.

Dollar Yen (105.65), as per our expectation, dipped yesterday after testing resistance on daily candles near 106.5-106.6. It could now dip further towards support near 105 on daily candles. We have been saying that the Dollar Yen might be about to turn bearish towards 105 and lower in the next 1-2 weeks. A break of 105, if it happens, would be crucial since the Dollar Yen hasn’t been able to move below that level for more than a year.

Euro Yen (130.58) has immediate resistance on daily candles near 131 which should push it down again towards crucial support level of 130. Both Euro and Yen could strengthen further against the Dollar in the coming weeks (as mentioned above) – which might thereby keep the Euro Yen ranged above 130.

Pound (1.4159) as per our expectation, saw some bullishness and rose towards 1.42 from levels near 1.40 yesterday. It could attempt a test of 1.44 (seen as resistance on 3 day candles and 3 day line charts) in the coming 1-2 weeks.

Dollar Rupee (65.21) – Immediate support seen at 65.05/06 with lower supports at 65.0-64.80. An upmove in Dollar Rupee above 65.25 could take it higher towards 65.40/60.

INTEREST RATES

The US Fed’s rate hike of 25 basis points was supplemented by a moderation of its hawkish stance (via signaling of only 2 more rate hikes this year as opposed to the much anticipated 3 more hikes). However, the Fed now signals 3 rate hikes in 2019 instead of the earlier 2. Against our expectation, bond yields haven’t seen a significant rise post the rate hike yet. Our Treasury report for Mar’18 (available on demand) predicts a decline in yields after an initial upmove in the days post the rate hike. Looks like the decline might happen without the initial upmove – let’s wait and watch.

US 10 Yr Yield (2.87%), 30 Yr (3.10%), 5 Yr (2.66%), 2 Yr (2.295%) : US 2 Year yield has dropped below 2.3% while the other longer term yields continue to move around levels seen in the past week. On the short term chart, the 30 yr yield could move up towards 3.2% after having tested support near 3.05%. The 10 Yr yield is in a downward channel, which if not broken, would mean that it could dip towards 2.8% again.

The targets for Apr’18 mentioned in our Treasury report are 3.075% for the 10 Year yield, 3.3% for the 30 Yr yield and 2.925% for the 5 Year yield. We might revisit these if the decline in yields happens earlier than expected.

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