Forex Knowledge 8 MAY 2014 currency Report.
EQUITIES
A surprising jump in both Imports & Exports for China and the statement from the Fed Chairperson Yellen assuring the market about the Fed's continued support to the economy boosted the sentiment in nearly every market today.
The Dow (16518.54, +0.72%) bounced from 16350 levels on the back of a Fed statement about no hurry to raise interest rates. But the risk of further fall remains as long as this 10 week long range of 16000-16600 remains intact. Keep watching for a break above 16650 for a signal for a rise towards 17000 levels.
The Dax (9521.30, +0.57%) is stuck in a narrow range of 9350-9650 for the last 9 sessions and broadly, inside 9050-9720 for more than 2 months. A breakout above 9720 may produce a very sharp rally to 10000-10200 but the initial signal for any significant move would come only on a break beyond 9350-9650.
In the Asia-pac, Shanghai (2027.13, +0.85%) faced sharp rejection from 2040 exactly as expected. The index runs the risk of resuming the major downtrend anytime now. Any attempt to bounce may not be that smooth with 2070-80 expected to stiffly push down any bounce.
The Nikkei (14186.56, +1.09%) has bounced a little from our support area of 14000-13850 but the trend remains weak below 14500-700. No clarity is available in this range of 14000-14700. Bias remains neutral.
The Nifty (6652.55, -0.93%) tested the lower boundary of the range of 6650-6850 as CNX IT broke down sharply firmly below 9050-40 to signal further downside towards 8600-500. Any bounce on the back of the global cues needs to make a new high above 6720-40 to negate the weakness. If Nifty trades below 6650, keep an eye for 6620 where the correction has a chance to end. Below 6620, the door to 6500 opens up.
COMMODITIES
Mixed signals from Commodities. Gold-Silver testing crucial Supports, with long-term bullishness/ bearishness at stake. Copper looks a little vulnerable to weakness while Crude is potentially bullish.
Gold (Spot 1290) has dipped in line with yesterday's expectation of fall to 1300. Crucial Support seen in the 1290-1279 region over today-tomorrow. Needs to hold to keep near-term bullishness intact and produce a bounce towards 1325 again. Break below 1279, if seen, could bring serious doubt to Gold strength.
Silver (19.27) too has crucial near-term Support coming up between 19.00-18.65. These need to hold in order to produce a bounce, else the long-term downtrend, which provides strong Resistance at 20.25-40 could push prices lower in the next few weeks.
WTI (100.86) is moving up this week after having dipped to 98.75 last week. The rise above 100.40-75 over yesterday-today raises trust in an overall bullish scenario. A Week Close above 102.50 would suggest chances of rise towards 105 in the coming weeks.
Brent (108.02) has also bounced from crucial Support at 107 and can aim for higher levels if it manages to rise past 109. We remain bullish for 114 in the medium/ long term.
Copper (3.0365) trades below 3.05 today, which puts our target of 3.10 at risk. The failure to stay above 3.05 is a first sign of potential weakness. It needs to remain above 3.00 at least if it wants to look strong. Else, there will be danger of a fall towards 2.90.
FOREX
Dollar Index (79.2340) is trying to bounce from 79 but till it trades above 79.50-55 soon, the risk remains. But the band of 79.00-78.60 has provided support for nearly 2 years now and that is the hope for bulls.
The Euro (1.3913) is going under a small correction after breaking above 1.3900 and hitting 1.3951 so far. Keep an eye if ECB takes some step near 1.4000-50 but a break above 1.4050 would open the door to huge upside targets.
Dollar-Yen (101.87), even in the current weak state, has managed so far to remain in the 10 week long broad range of 101-104. We keep watching a break of the long term support at 101.00-100.50 for major moves on the downside.
The Euro-Yen Cross (141.75) has remained almost unchanged as both Euro and Yen appreciated considerably but may move sharply any day now. The broader range of 140.00-143.50 must be broken to generate a trending move.
Pound (1.6948) is correcting after reaching our target zone of 1.7000-50 as it made a high at 1.6996. Remaining above 1.6850-30 on any correction, it may rise towards 1.7250-90 in the next few sessions.
Aussie (0.9368) broke above 0.9315 to make a high at 0.9370 as expected but it remains to be seen if it manages to break above the strong resistance area of 0.9380-0.9400 to confirm a reversal and rise to 0.9540-80. A failure may result in another fall to 0.92.
Dollar-Rupee (60.1350) ended the day at the high of a 19 paisa range but keeping the current downtrend in mind, the price-action at 60.25-28 remains to be seen before giving the Dollar Rupee bulls any hope. Failure to break above 60.25-28 keeps the possibility of testing the major support zone of 59.80-60 alive very much.
INTEREST RATES
The US yield curve steepened a little as the 10Yr (2.62%) and the 30Yr (3.40%) saw a slight bounce yesterday while the 5Yr (1.64%) dipped. The yields have crucial supports coming up at 1.62%, 2.50% and 3.35% for the 5, 10 and 30Yr respectively. The 30-10Yr spread (0.78%) is also testing support at current levels. So we can expect the US Yield curve to start steepening in the coming months if the supports hold.
The German-US 2Yr yield differential (-0.25%) saw a slight dip as the Euro (1.3913) trades lower ahead of the ECB Meeting. With the Euro targeting the longer term resistance near 1.40-50 we can expect the yield differential to rise further towards -0.20%.
The Japan 10-5Yr yield spread (0.41%) is testing support at current levels and we may see a bounce from here taking the yields higher. The US-Japan 10Yr yield differential (2.02%) has come up slightly, moving in perfect co-relation with Dollar-Yen (101.87) and we can expect it to rise from here if the Dollar-Yen bounces from the support at current levels.
The Indian 10Yr GOI (8.80%) has come up to test a resistance at current levels. A break above 8.80% and it can target 8.90% otherwise it is vulnerable to a fall towards 8.50-8.60%.
The ECB and BOE will come out with their Monetary Policy statement today evening. With the Euro getting stronger and low inflation still a concern for the ECB we need to see whether Draghi makes in changes in the Monetary Policy. While in England with the unemployment falling below 7% the BOE is may now consider increasing the interest rates.
EQUITIES
A surprising jump in both Imports & Exports for China and the statement from the Fed Chairperson Yellen assuring the market about the Fed's continued support to the economy boosted the sentiment in nearly every market today.
The Dow (16518.54, +0.72%) bounced from 16350 levels on the back of a Fed statement about no hurry to raise interest rates. But the risk of further fall remains as long as this 10 week long range of 16000-16600 remains intact. Keep watching for a break above 16650 for a signal for a rise towards 17000 levels.
The Dax (9521.30, +0.57%) is stuck in a narrow range of 9350-9650 for the last 9 sessions and broadly, inside 9050-9720 for more than 2 months. A breakout above 9720 may produce a very sharp rally to 10000-10200 but the initial signal for any significant move would come only on a break beyond 9350-9650.
In the Asia-pac, Shanghai (2027.13, +0.85%) faced sharp rejection from 2040 exactly as expected. The index runs the risk of resuming the major downtrend anytime now. Any attempt to bounce may not be that smooth with 2070-80 expected to stiffly push down any bounce.
The Nikkei (14186.56, +1.09%) has bounced a little from our support area of 14000-13850 but the trend remains weak below 14500-700. No clarity is available in this range of 14000-14700. Bias remains neutral.
The Nifty (6652.55, -0.93%) tested the lower boundary of the range of 6650-6850 as CNX IT broke down sharply firmly below 9050-40 to signal further downside towards 8600-500. Any bounce on the back of the global cues needs to make a new high above 6720-40 to negate the weakness. If Nifty trades below 6650, keep an eye for 6620 where the correction has a chance to end. Below 6620, the door to 6500 opens up.
COMMODITIES
Mixed signals from Commodities. Gold-Silver testing crucial Supports, with long-term bullishness/ bearishness at stake. Copper looks a little vulnerable to weakness while Crude is potentially bullish.
Gold (Spot 1290) has dipped in line with yesterday's expectation of fall to 1300. Crucial Support seen in the 1290-1279 region over today-tomorrow. Needs to hold to keep near-term bullishness intact and produce a bounce towards 1325 again. Break below 1279, if seen, could bring serious doubt to Gold strength.
Silver (19.27) too has crucial near-term Support coming up between 19.00-18.65. These need to hold in order to produce a bounce, else the long-term downtrend, which provides strong Resistance at 20.25-40 could push prices lower in the next few weeks.
WTI (100.86) is moving up this week after having dipped to 98.75 last week. The rise above 100.40-75 over yesterday-today raises trust in an overall bullish scenario. A Week Close above 102.50 would suggest chances of rise towards 105 in the coming weeks.
Brent (108.02) has also bounced from crucial Support at 107 and can aim for higher levels if it manages to rise past 109. We remain bullish for 114 in the medium/ long term.
Copper (3.0365) trades below 3.05 today, which puts our target of 3.10 at risk. The failure to stay above 3.05 is a first sign of potential weakness. It needs to remain above 3.00 at least if it wants to look strong. Else, there will be danger of a fall towards 2.90.
FOREX
Dollar Index (79.2340) is trying to bounce from 79 but till it trades above 79.50-55 soon, the risk remains. But the band of 79.00-78.60 has provided support for nearly 2 years now and that is the hope for bulls.
The Euro (1.3913) is going under a small correction after breaking above 1.3900 and hitting 1.3951 so far. Keep an eye if ECB takes some step near 1.4000-50 but a break above 1.4050 would open the door to huge upside targets.
Dollar-Yen (101.87), even in the current weak state, has managed so far to remain in the 10 week long broad range of 101-104. We keep watching a break of the long term support at 101.00-100.50 for major moves on the downside.
The Euro-Yen Cross (141.75) has remained almost unchanged as both Euro and Yen appreciated considerably but may move sharply any day now. The broader range of 140.00-143.50 must be broken to generate a trending move.
Pound (1.6948) is correcting after reaching our target zone of 1.7000-50 as it made a high at 1.6996. Remaining above 1.6850-30 on any correction, it may rise towards 1.7250-90 in the next few sessions.
Aussie (0.9368) broke above 0.9315 to make a high at 0.9370 as expected but it remains to be seen if it manages to break above the strong resistance area of 0.9380-0.9400 to confirm a reversal and rise to 0.9540-80. A failure may result in another fall to 0.92.
Dollar-Rupee (60.1350) ended the day at the high of a 19 paisa range but keeping the current downtrend in mind, the price-action at 60.25-28 remains to be seen before giving the Dollar Rupee bulls any hope. Failure to break above 60.25-28 keeps the possibility of testing the major support zone of 59.80-60 alive very much.
INTEREST RATES
The US yield curve steepened a little as the 10Yr (2.62%) and the 30Yr (3.40%) saw a slight bounce yesterday while the 5Yr (1.64%) dipped. The yields have crucial supports coming up at 1.62%, 2.50% and 3.35% for the 5, 10 and 30Yr respectively. The 30-10Yr spread (0.78%) is also testing support at current levels. So we can expect the US Yield curve to start steepening in the coming months if the supports hold.
The German-US 2Yr yield differential (-0.25%) saw a slight dip as the Euro (1.3913) trades lower ahead of the ECB Meeting. With the Euro targeting the longer term resistance near 1.40-50 we can expect the yield differential to rise further towards -0.20%.
The Japan 10-5Yr yield spread (0.41%) is testing support at current levels and we may see a bounce from here taking the yields higher. The US-Japan 10Yr yield differential (2.02%) has come up slightly, moving in perfect co-relation with Dollar-Yen (101.87) and we can expect it to rise from here if the Dollar-Yen bounces from the support at current levels.
The Indian 10Yr GOI (8.80%) has come up to test a resistance at current levels. A break above 8.80% and it can target 8.90% otherwise it is vulnerable to a fall towards 8.50-8.60%.
The ECB and BOE will come out with their Monetary Policy statement today evening. With the Euro getting stronger and low inflation still a concern for the ECB we need to see whether Draghi makes in changes in the Monetary Policy. While in England with the unemployment falling below 7% the BOE is may now consider increasing the interest rates.
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