Forex Knowledge 29 MAY 2014 currency Report.
Nearly all the markets are trading very quietly ahead of the US GDP data and even a worse than expected drop in Japanese retail sales didn't produce any significant ripple. The Indian F&O Expiry may produce some sharp moves.
The contracting range visible in Dow (16633.18, -0.25%) is producing ever smaller moves regarding both rallies and drops even with the higher highs & lows coming up. Keep an eye on 16400 on the downside and 16800-900 on the upside for an explosive breakout beyond this contracting range. The Dax (9939.17, -0.02%) has run closer to a minor resistance at 9985-10050 but the major uptrend looks strong enough to push it up to 10300-400.
The Nikkei (14649.27, -0.15%) may rally towards 15200-300 or even higher now and any correction should be limited to 14300-250. The Shanghai (2049.64, -0.03%) has been trading in1990-2080 for the last 1 month and now it is close to the upper end at 2060-65 where some selling can be expected again. The sideways move in the broader range of 1990-2080 may continue for some more time in a base-building process.
The speculation over the next step RBI is going to take has reached a feverish level but Nifty (7329.65, +11.65) is contained in a contracting range for the last two days. The multiple retesting of 7275-70 makes that an important support but this correction may reach 7130 or even lower. Keep an eye on 7200-7190 and 7080 for major supports.
COMMODITIES
Gold (1257.126) has initiated a sharp fall which may target 1225 in the coming sessions. Though it is testing a near-term support near 1257-1260, chances of breaking below is higher. However, if it bounces back from current levels it may target 1280 before again resuming the fall. Overall our longer term bearish view holds.
Copper (3.1625) is stable for now but is eventually targeting 3.20-3.25 in the near term. Copper Gold ratio (0.161) has been rising since March?14 (0.14) and is targeting higher levels for now, indicating strength in equities. Overall near term is bullish for Copper.
Silver (19.046) is stable while above 19. Sideways consolidation may continue within 19-19.66 region. Unless a break on either side of this range, further direction cannot be determined. Gold-Silver ratio (66.003) has fallen as expected and may target 65.50 in the coming sessions. Near term is bearish.
Brent (109.90) has entered into a correction mode while in an uptrend, as the resistance near 111.04 holds well. The fall may push it to support near 109.5-109-108.94 from where we may expect a bounce back towards 110 levels.
Nymex WTI (102.96) has fallen sharply from resistance near 104.45-104.50 and is testing levels of 102.94 now. It may fall further towards 102.30-101.60 in the coming sessions if it breaks below 102.94.
FOREX
The feeble attempts by the major pairs to appreciate are over and Dollar is strengthening against almost all the currencies. But quite a few of the currencies are close to their major support zones. Keep watch.
The Euro (1.3605) is testing the trendline support at 1.3590-80 and may try to bounce back to 1.3700-30. But the weakness remains intact below 1.3800 and any bounce is expected to face selling pressure at the higher levels.
Dollar-Yen (101.68) has been pushed down exactly from our resistance at 102.00-15 but a break above this resistance is required to take it to the higher resistance at 102.75-103.00.The Euro-Yen (138.35) is also testing the last swing low near 138 (also 200 DMA at 138.30) as all attempts to break above 140 have failed so far and looks all set for a fall to 136-135 in the next few sessions.
The uptrend in Pound (1.6723) has been neutralized with this break of 1.6730 and now a dip to 1.6670-20 can't be ruled out. Now it remains to be seen if the last hope for the bulls at 1.66 remains protected or not.
The Aussie (0.9274) tested the support area at 0.9200-0.9180 once again before bouncing sharply. But we still wait for a break beyond the broader range of 0.92-0.94 which may produce the next major directional move.
Dollar-Rupee (58.93) faced rejection from exactly our resistance at 59.20 and that 59.20 becomes the breakout point for the next rally. It could be too early to conclude that the rally is finished at 59.20. It may well be a normal correction after 3-4 days of rise and there is a probability of the strength returning from 58.75-65. Only a break below 58.65 would be a matter for concern for the Dollar bulls.
INTEREST RATES
There has been fall in yields globally.
The US 5Yr (1.50%) and the 10Yr (2.44%) came off from the crucial levels of 1.55% and 2.55% respectively and the 30Yr (3.29%) broke below the support near 3.34%. The fall in the yields indicates a weak growth outlook. The GDP data today will be watched. With the yields breaking below the important supports we can now expect them to trade even lower. The yield differentials have also seen a fall and the 10-5Yr (0.94%) has fallen below the support near 0.95% indicating a flatter yield curve.
The German 10Yr (1.34%), the Spanish 10Yr (2.82%), France 10Yr (1.73%) and the Italian 10Yr (2.93%) have fallen further in anticipation of a rate cut in next week? ECB Meeting. The German-US 2Yr yield spread (-0.32%) has fallen and is testing support at current levels in line with the Euro (1.3608) which continues to trade lower. A bounce in the spread from these levels and it can go up to -0.25% and can take the Euro higher.
The US-Japan 10Yr yield spread (1.87%) has fallen further and may test 1.80%if the fall continues. The Japan 10Yr (0.56%) came off from the long term resistance near 0.60%. The 10-5Yr yield differential (0.38%) has come to test a long term support near 0.375% and we may see a bounce from here.
The Indo-US 10Yr yield spread (6.20%) saw a rise on the back of the falling US yields and may test the resistance near 6.25%. The 10Yr GOI (8.70%) saw a rise, unaffected by the global fall in the yields and may target the 200 Day MA near 8.80%.
Nearly all the markets are trading very quietly ahead of the US GDP data and even a worse than expected drop in Japanese retail sales didn't produce any significant ripple. The Indian F&O Expiry may produce some sharp moves.
The contracting range visible in Dow (16633.18, -0.25%) is producing ever smaller moves regarding both rallies and drops even with the higher highs & lows coming up. Keep an eye on 16400 on the downside and 16800-900 on the upside for an explosive breakout beyond this contracting range. The Dax (9939.17, -0.02%) has run closer to a minor resistance at 9985-10050 but the major uptrend looks strong enough to push it up to 10300-400.
The Nikkei (14649.27, -0.15%) may rally towards 15200-300 or even higher now and any correction should be limited to 14300-250. The Shanghai (2049.64, -0.03%) has been trading in1990-2080 for the last 1 month and now it is close to the upper end at 2060-65 where some selling can be expected again. The sideways move in the broader range of 1990-2080 may continue for some more time in a base-building process.
The speculation over the next step RBI is going to take has reached a feverish level but Nifty (7329.65, +11.65) is contained in a contracting range for the last two days. The multiple retesting of 7275-70 makes that an important support but this correction may reach 7130 or even lower. Keep an eye on 7200-7190 and 7080 for major supports.
COMMODITIES
Gold (1257.126) has initiated a sharp fall which may target 1225 in the coming sessions. Though it is testing a near-term support near 1257-1260, chances of breaking below is higher. However, if it bounces back from current levels it may target 1280 before again resuming the fall. Overall our longer term bearish view holds.
Copper (3.1625) is stable for now but is eventually targeting 3.20-3.25 in the near term. Copper Gold ratio (0.161) has been rising since March?14 (0.14) and is targeting higher levels for now, indicating strength in equities. Overall near term is bullish for Copper.
Silver (19.046) is stable while above 19. Sideways consolidation may continue within 19-19.66 region. Unless a break on either side of this range, further direction cannot be determined. Gold-Silver ratio (66.003) has fallen as expected and may target 65.50 in the coming sessions. Near term is bearish.
Brent (109.90) has entered into a correction mode while in an uptrend, as the resistance near 111.04 holds well. The fall may push it to support near 109.5-109-108.94 from where we may expect a bounce back towards 110 levels.
Nymex WTI (102.96) has fallen sharply from resistance near 104.45-104.50 and is testing levels of 102.94 now. It may fall further towards 102.30-101.60 in the coming sessions if it breaks below 102.94.
FOREX
The feeble attempts by the major pairs to appreciate are over and Dollar is strengthening against almost all the currencies. But quite a few of the currencies are close to their major support zones. Keep watch.
The Euro (1.3605) is testing the trendline support at 1.3590-80 and may try to bounce back to 1.3700-30. But the weakness remains intact below 1.3800 and any bounce is expected to face selling pressure at the higher levels.
Dollar-Yen (101.68) has been pushed down exactly from our resistance at 102.00-15 but a break above this resistance is required to take it to the higher resistance at 102.75-103.00.The Euro-Yen (138.35) is also testing the last swing low near 138 (also 200 DMA at 138.30) as all attempts to break above 140 have failed so far and looks all set for a fall to 136-135 in the next few sessions.
The uptrend in Pound (1.6723) has been neutralized with this break of 1.6730 and now a dip to 1.6670-20 can't be ruled out. Now it remains to be seen if the last hope for the bulls at 1.66 remains protected or not.
The Aussie (0.9274) tested the support area at 0.9200-0.9180 once again before bouncing sharply. But we still wait for a break beyond the broader range of 0.92-0.94 which may produce the next major directional move.
Dollar-Rupee (58.93) faced rejection from exactly our resistance at 59.20 and that 59.20 becomes the breakout point for the next rally. It could be too early to conclude that the rally is finished at 59.20. It may well be a normal correction after 3-4 days of rise and there is a probability of the strength returning from 58.75-65. Only a break below 58.65 would be a matter for concern for the Dollar bulls.
INTEREST RATES
There has been fall in yields globally.
The US 5Yr (1.50%) and the 10Yr (2.44%) came off from the crucial levels of 1.55% and 2.55% respectively and the 30Yr (3.29%) broke below the support near 3.34%. The fall in the yields indicates a weak growth outlook. The GDP data today will be watched. With the yields breaking below the important supports we can now expect them to trade even lower. The yield differentials have also seen a fall and the 10-5Yr (0.94%) has fallen below the support near 0.95% indicating a flatter yield curve.
The German 10Yr (1.34%), the Spanish 10Yr (2.82%), France 10Yr (1.73%) and the Italian 10Yr (2.93%) have fallen further in anticipation of a rate cut in next week? ECB Meeting. The German-US 2Yr yield spread (-0.32%) has fallen and is testing support at current levels in line with the Euro (1.3608) which continues to trade lower. A bounce in the spread from these levels and it can go up to -0.25% and can take the Euro higher.
The US-Japan 10Yr yield spread (1.87%) has fallen further and may test 1.80%if the fall continues. The Japan 10Yr (0.56%) came off from the long term resistance near 0.60%. The 10-5Yr yield differential (0.38%) has come to test a long term support near 0.375% and we may see a bounce from here.
The Indo-US 10Yr yield spread (6.20%) saw a rise on the back of the falling US yields and may test the resistance near 6.25%. The 10Yr GOI (8.70%) saw a rise, unaffected by the global fall in the yields and may target the 200 Day MA near 8.80%.
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