GOOD MORNING!
FOREX
Victory of the Democrats in the US midterm election results has kept the downward pressure on the Dollar Index intact as it trades below 101.50. It may slip to 101 and a break below if seen could be bearish for the near term towards 100.35. Tomorrow’s US NFP needs a close watch. EURUSD Is headed towards 1.13 before a reversal is possible from there while the Dollar-Yen may ease towards 157. EURJPY could rise to 179 on a sustained break above 178 else can fall back towards 177/176 while the Pound, Aussie and the Chinese Yuan trades strong. USDINR may test support near 94.50 and break it to head towards the phycological level of 94. Thereafter, it needs to be seen if a rebound happens or the spot breaks lower.
Dollar Index (101.31) trades lower as the Democrats have secured both the Houses with a landslide victory. The Index may test 101 in the near term from where a bounce can be expected but if it slips lower, a test of 100.35 could b on the cards for the coming days. Watch price action near 101.
EURUSD (1.1254) has broken above 1.1250 and has scope to test 1.13 on the upside before resuming its fall again in the medium term. Overall, the broad 1.13-1.11 region can hold as trade zone for the coming weeks.
Dollar-Yen (158.04) has declined along with the Dollar Index and has scope to test 157 on the downside before pausing for a reversal. EURJPY (177.91) could rise towards 179 if it manages to break above 178 in the near term.
EURINR (106.0923) could continue to trade within the 106.80-105.70 region for now unless we see any decisive breakout on either side of the range.
USDCNY (6.6697) fell sharply from a high of 6.6861 and can decline further in the coming days towards 6.66 or lower.
Aussie (0.7018) has strengthened back on a weak US DOlalr and could test 0.7050-0.7080 in the near term. Pound (1.3487) too has been rising and can head towards 1.3550-1.36 soon.
USDINR (94.6713) could have scope to break below 94.50 today as the US Dollar trades weak, indicating strength to the other currencies against the Dollar. Note that a dip below 94.50 opens room for a dip towards 94 or lower in the medium term.
INTEREST RATES
The US Treasury and the German Yields have come down in line with our expectation. Indeed, the fall in the Treasury Yields seems to be much faster than expected on the back of the mid-term election results. Both the Treasury and the German Yields can dip further to test their support and then reverse higher again. The 10Yr GoI has declined below its support. We had expected it to bounce from that support. While this break sustains, the yield can fall more from here.
The US 10Yr (4.88%) and 30Yr (5.27%) Yields are coming down towards 4.85%-4.8% (10Yr) and 5.2% (30Yr) much faster than expected. After this fall we expect the Yields to rise back and breach their resistance at 5% (10Yr) and 5.4% (30Yr). They can then target 5.15%-5.2% (10Yr) and 5.4% (30Yr) on the upside. We will have to wait and see.
The German 10Yr (3.28%) and 30Yr (3.67%) Yields have come down again as expected. They can test 3.25%-3.2% (10Yr) and 3.6% (30Yr). Thereafter a fresh rise can take them up to 3.7% (10Yr) and 4%-4.1% (30Yr) happens.
The 10Yr GoI (7.1880%) has come down below 7.2%. We had expected a bounce from 7.2%. While below 7.2%, there are chances of seeing an extended fall to 7.1%.
STOCKS
Global equities have turned risk-on after the US midterm results, with the Dow and DAX looking strong above 52,000 and 26,000, and upside towards 53,800-54,000 and 27,000. Nifty remains strong and needs to sustain near 24,300 to move towards 24,400-24,600. Nikkei needs to hold above 60,000 to recover towards 62,000 or higher. Shanghai has turned firmer and can rise towards 3,750 or higher while it sustains above 3,600.
Dow (53356.12, +3.03%) has risen sharply to test the high of 53492 before closing, contrary to our earlier view, on strong risk-on sentiment after the US midterm results. Further rise can extend towards 53800-54000 over the coming week while it holds above 52000.
DAX (26437.67, +2.22%) has risen sharply to test the high of 26541 before closing, contrary to our earlier view, driven by the same global risk-on move and softer oil. Further rise towards 27000 looks possible in the coming weeks while it holds above 26000.
Nifty (23960.60, +0.63%) may open with a gap up near 24300, extending its recent strength, and needs to sustain this level to move higher towards 24400-24600 in the coming session.
Nikkei (61383.77, -1.31%) tested the low of 60030 yesterday as expected before closing higher. It needs to hold above 60000 to recover towards 62000 or higher in the coming session.
Shanghai (3686.17, +2.16%) moved sharply higher from the low of 3580 to the current level, contrary to our earlier view, supported by fresh policy measures and state-backed buying. While it sustains above 3600, further rise can be seen towards 3750 or higher over the coming week.
COMMODITIES
Crude oil prices have turned bearish, with further downside potential. Brent may decline towards 85–90 and WTI towards 80–85. Strong Middle East exports continue despite the ongoing US-Iran conflict. Meanwhile, gold and silver have rebounded sharply. Gold targets 4,200–4,250 above 4,000, while silver eyes 54–55. Copper remains vulnerable below 6.45–6.50, targeting 6.25. Natural gas is likely to remain range-bound between 2.7 and 3.2.
Brent ($93.98) and WTI ($87.37) plummeted on Wednesday. Losses in crude oil prices accelerated after Vice President Vance directly attributed the Democratic sweep of Congress in Tuesday’s midterm elections to the Iran war. Despite the ongoing US-Iran conflict, oil supplies continue to flow out of the Middle East. Combined exports from Saudi Arabia, the UAE, Iraq, and Kuwait rose 10% to 15.53 million bpd in October, broadly in line with the levels shipped at the beginning of the year, according to tanker-tracking data compiled by Bloomberg.
Hence, our bullish view appears to have been negated, and prices could decline further towards 90–85 for Brent and 85–80 for WTI in the near term.
Gold ($4111.10) bounced back sharply, contrary to our expectations, as crude oil prices fell steeply. If gold sustains above 4,000, a further rise towards 4,200–4,250 could be seen in the near term.
Silver ($52.57) also bounced back sharply following the steep correction in crude oil prices. A further rise towards 54–55 could be seen in the near term.
Copper ($6.38) tested a low of 6.27, in line with our expectations, but failed to sustain at lower levels and bounced back sharply to close at 6.43 yesterday. As long as prices remain below 6.45–6.50, copper remains vulnerable to a further decline towards 6.25.
Natural Gas ($2.9350) settled higher on Wednesday as forecasts for cooler autumn temperatures in the US could potentially boost heating demand for natural gas. Prices could continue to trade within the 2.7–3.2 range for some time.
DATA TODAY
00:30 6:00 AU Trade Balance
Expected 1B ...Previous 0.18B ...Actual 2.83B
12:00 17:30 BOE Meeting
Expected 4 ...Previous 3.75
12:00 17:30 UK BOE Minutes
Expected 7-0-2 ...Previous 3-0-6
YESTERDAY's DATA:-
----------------
22:30 4:00 AU PMI
...Kshitij Expectation...1.4 Expected 0 ...Previous -8.7 ...Actual -20.1
5:00 10:30 IN Services PMI
Expected 56.2 ...Previous 56.2 ...Actual 55.8
13:15 18:45 US ADP EMP
EXpected 68K ...Previous 86K ...Actual 86K
13:30 19:00 US Trade Balance
...Kshitij Expectation...-106.6 EXpected -107.9 ...Previous -105.7 ...Actual -105
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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