GOOD MORNING!
FOREX
Overall, major currency pairs are expected to trade mostly sideways with a few bearish Dollar signals emerging. The Dollar Index may remain confined near 100-99, after rising to 99.726 initially on comments from Warsh of a hike in interest rates if inflation does not cool off while EURUSD, USDJPY, EURINR, EURJPY, Aussie, Pound, USDCNY, and USDINR are all hovering near important support or resistance levels that will determine their next directional moves.
Dollar Index (99.582) rose sharply on Friday to test 99.726, after comments from Warsh stated a need to hike interest rates if inflation does not cool off. The Index has dipped today and could trade in a sideways range of 100-99 unless a decisive breakout is seen on either side.
EURUSD (1.1593) dipped to 1.1577 on the rally in the DXY. While below 1.16, a slow dip towards 1.1550 or lower can be possible before a bounce back above 1.16+ eventually.
Dollar-Yen (159.80) tested 160.204 before coming off from there. Interim support can be seen near 159.50, which, if broken, can head towards 159 or lower in the medium term. Only a decisive break above 160, if seen again, can turn the view bullish.
EURINR (110.77) dipped to test 110.488 as expected before bouncing higher today. The cross pair may reattempt to rise back to 111 and higher in the coming days.
EURJPY (185.22) has held well below 186. Rising from a low of 184.512, the pair seems to be headed back towards 186 in the coming sessions.
USDCNY (6.7227) has risen back above 6.72; however, the near-to medium-term view remains bearish for a decline towards 6.70.
Aussie (0.7165) has fallen from levels above 0.72 to 0.7155 but is trying to bounce back again. It could attempt to re-test 0.72 in the coming days.
Pound (1.3542) is likely to hold above 1.35 and rise towards 1.36 in the near term.
USDINR (95.36) declined on Friday to test 95.3825. It is more likely that it would bounce back towards 95.50 or higher in the next few sessions. 95 remains a crucial support in the near term.
INTEREST RATES
The US Treasury Yields have risen sharply on Friday. The Fed Chairman Kevin Warsh’s speech at the Jackson Hole symposium has raised the hopes for a rate hike and pushed the yields higher. The 10Yr is at the top of its range. Need to see if the expected bullish breakout is happening now or not. The German Yields are also moving up in line with our expectation. Crucial resistance is ahead and the price action around it will need a close watch for a possible reversal. The 10Yr GoI is going up as expected. There is room to rise further to test its resistance. Thereafter the yields can reverse lower.
The US 10Yr (4.71%) and 30Yr (5.2%) yields have risen sharply. The 10Yr is near the top of its 4.59%-4.75% range. We expect it to break 4,75% and rise to 4.8% and 5% eventually. The 30Yr can rise to 5.4% while it sustains above the 5.15%-5.1% support zone.
The German 10Yr (3.28%) and 30Yr (3.77%) Yields are heading up towards 3.3%-3.35% (10Yr) and 3.8%-3.85% (30Yr) in line with our expectation. The price action thereafter will need a watch to see if a correction is happening or not.
The 10Yr GoI (6.9108%) has risen above 6.9%. While this sustains, an extended rise to 6.95% is possible. Thereafter the yield can turnaround and resume the broader downtrend towards 6.8% and even lower.
STOCKS
Dow is weakening below 54000 and can remain within the 53000-54000 range. DAX remains positive above 26500 and can rise towards 26750-27000. Nifty continues to face downside risk towards 24000 or lower unless it sustains above 24300, which would revive the bullish outlook towards 24600-24800. Nikkei has reversed and remains at a crucial support near 65000, with a bounce towards 67000-68000 possible if it holds. Shanghai is likely to remain range-bound between 3850-4000 while below 4000.
Dow (53416.42, -0.28%) is falling after testing levels near 53800. While below 54000, a range of 53000-54000 could hold for some time.
DAX (26503.68, -0.45%) closed above 26500 at 26621 on Friday and is currently holding above 26500. A further rise towards 26750-27000 can be seen in the near term.
Nifty (24,090.85, -0.48%) closed above 24100 on Friday. The index remains vulnerable to a decline towards 24000 or lower in the coming weeks. Only a sustained rise above 24300 could negate this weakness and trigger a further rise towards 24600-24800.
Nikkei (65305.18, -0.71%) has reversed, contrary to our expectations. Immediate support is seen near 65000. If this holds, a bounce back towards 67000-68000 can be seen. Alternatively, a break below this level would drag the index further down towards 64000.
Shanghai (3945.49, -0.17%) can continue to trade within the range of 3850-4000 for some time while it remains below 4000.
COMMODITIES
Crude prices have moved higher, while Brent and WTI are likely to remain within the broad $80-$95 and $75-$90 ranges respectively. Gold and Silver have corrected sharply following the Fed meeting and its hawkish stance, but can bounce towards $4600-$4700 and $70 or higher respectively while key supports hold. Copper remains range-bound between $6.50-$6.80, with a sustained break below $6.50 opening the way towards $6.40-$6.20. Natural Gas has reversed after testing $3.00 and can decline further towards $2.80-$2.70 while below this level.
Brent ($90.46) and WTI ($85.33) have moved higher. The earlier mentioned ranges of $80-$95 and $75-$90 respectively can hold for some time.
Gold ($4494.10) saw a sharp fall to $4495 on Friday following the Fed meeting, which signalled a hawkish stance and increased rate hike expectations. While it holds above $4400-$4500, we expect the price to bounce back towards $4600-$4700 in the coming weeks.
Silver ($66.99) saw a sharp reversal and tested a low of $66.83 on Friday following the Fed meeting. While it holds above $66.50-$66.00, we expect a bounce back towards $70 and higher in the coming weeks.
Copper ($6.61) has fallen as expected and can remain within the range of $6.50-$6.80 for some time. Thereafter, if the resistance near $6.80 continues to hold, a break below $6.50 could trigger a further decline towards $6.40-$6.20 over the coming weeks.
Natural Gas ($2.8610) has reversed after testing $3.00. While below this level, a further decline towards $2.80-$2.70 can be seen.
DATA TODAY
12:00 17:30 IN GDP
...Expected 7.1 % ...Previous 7.8 %
FRIDAY'S DATA:-
---------------
JP Unemp
...Expected 2.5 % ...Previous 2.5 % ...Actual 2.4 %
EU Biz Climate
...Expected 97.5 ...Previous 97.1 ...Actual 98.4
IN IIP
...Kshitij Expn. 4.3 % ... Expected 6.0 % ...Previous 8.8 % ...Actual 6.7 %
CA GDP
...Expected 0.2 ...Previous 0.3 ...Actual 0.3
DISCLAIMER
These views/ forecasts/ suggestions, though proferred with the best of intentions, are based on our reading of the market at the time of writing. They are subject to change without notice.Though the information sources are believed to be reliable, the information is not guaranteed for accuracy. Those acting in the market on the basis of these are themselves responsible for any profits or losses that might occur, without recourse to us. World financial markets, and especially the Foreign Exchange markets, are inherently risky and it is assumed that those who trade these markets are fully aware of the risk of real loss involved.
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