Wednesday March 5, 2014 - 03:50:47 GMT
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FX Thoughts for the Day - www.fxthoughts.com
Morning Briefing : 05-Mar-2014 -0349 GMT
All the global markets rallied hard as the threat of a war in Ukraine receded with the credit risk falling to its lowest in 2014 so far. The hugely oversold Russian market (1184.22, +6.20%) bounced back strongly but still has to overcome the supply zone of 1220-40 before it can be called a true reversal.
Most Asian markets are trading in the positive territory today. Nikkei (14942.78, +1.50%) reached our target resistance zone of 15000 and with brief intermittent corrections, may rise towards 15200-300 now.
Shanghai (2062.02, -0.46%) is consolidating a bit after the sharp rally from 2015-20 to 2080. After the consolidation, it may rise higher towards 2100-2110 if it manages to break above 2075-77.
Nifty (6297.95, +1.23%) held above 6210 and rallied to 6270-6300 in line with our expectation. The rally may extend to the old supply zone and the higher end of the broader range at 6340-60 now, where the price action may decide the next course of action.
Dow (16395.88, +1.41%) resumed its uptrend to return to 16400 after a quick correction of only two days. Now a successful break above 16400-600 may take it towards 17000 soon.
Commodities show sharp movements as the Ukraine tension eases while the oil market tumbled sharply.
Gold (1336.59) has come off a bit from channel resistance. It may see some sideways consolidation between 1325 and 1350 before rising further. Overall trend remains up and near term view looks bullish.
Silver (21.19) remains ranged while below 21.48 and may continue so for some more time. The target of 22-22.20 still holds for the coming weeks.
Copper (3.2110) has risen sharply and is trading above 3.20. While above 3.20 we may now expect it to sustain and rise to higher levels of 3.25-3.30 in the near term.
The Oil market dropped sharply as the Ukraine tensions seemed to ease and doesn’t seem to disrupt the oil supplies. Brent (109.24) came off as expected from the crucial resistance at 111.32 to 109. While support near 109 holds we may see some ranged moves within 109-110.10 before rising further. A fall below 109 may push it to 108.
Nymex WTI (103.49) dropped sharply to support near 103.30 and if this holds we may see an eventual rise to 104-106. But there are also chances of consolidation to recover this sharp fall while below 104.40.
Dollar Index (80.14) has bounced from the old support zone of 79.80-70 as expected and it may attempt to rise to 80.45-50 again. Keep an eye on 79.70 for any major downmove as a break below 79.70 may drag it down to 79.10-78.90.
The Euro (1.3732) has failed to break above our major resistance of 1.3850 to weaken and this failure keeps it rangebound between 1.3850-1.3650. Major support comes at 1.3550-75.
Dollar-Yen (102.15) remains stuck in the broader range of 101-103 as the bulls manage to hold the support of 101.15 mentioned before. A sustained move above 101.60-70 may produce further rise towards 102.50-103.
The Euro-Yen Cross (140.27) reached our target of 141 before retreating to consolidate in 138.80-141.30 once again which may continue for some more time.
Pound (1.6667) may reach 1.68 now holding above 1.6640. It is in a correction of its major uptrend now which may extend to 1.6540-1.65 only if breaks the support of 1.66. It may reach 1.69-1.7050 after the current correction finishes. All the dips till 1.6470-80 may be bought into.
Aussie (0.8946) reached our target of 0.90 before weakening again as it remains in a broad range of 0.89-0.91 and only a breakout from this range may give a trending move with a clear direction.
Dollar-Rupee (61.8450) failed to confirm strength by failing to break above our resistance zone of 62.17-22. For the last few sessions, the range has further contracted to 61.75-62.15 inside the broader range of 61.70-62.50. We will be watching now if 61.70-80 manages to provide support again or gives way to further fall to 61.50-30.
Sharp increase in the US 10Yr, from 2.61% to 2.69%. We may have to rethink our downside target of 2.50% in case a further rise past 2.70% is seen. In that case the market may range between 2.60-2.80% for an extended period of time. Yields have risen as some of the "safe haven" flows that went into the USA have reverted on the de-escalation of the Ukraine situaton.
Importantly, the rise in the US10Yr has pushed the 10Yr Bund-Bond Spread down to -1.09%. The 2Yr Spread (-0.22%) has also come down from -0.17%. Maybe the 10Yr Spread will not break further lower immediately, but yesterday's fall reconfirms the overall downtrend that can eventually target -1.25%. That would work to try and keep the Euro (1.3735) below 1.3850.
The US-Japan 10Yr spread (2.11%) has also risen from 2.03%, pulling Dollar-Yen (102.25) up with it.
Stable US Yields, albeit at relatively elevated levels, may be something that the world is willing to live with. Note that Swap Costs are stable, especially in the 2-10Yr segment of the Yield Curve. So, maybe the market will start buying the Fed's guidance of extended period of low rates despite continuation of Tapering.
The Indo-US 10Yr Spread (6.29%) has risen above the 6.25% resistance. This is significant. We need to see if the positive break sustains and continues. If it does, it would be positive for the Rupee.
1:30 GMT or 7:00 IST AU GDP
...Expected 0.70 % ...Previous 0.60 % ...Actual 0.80 %
10:00 GMT or 15:30 IST EU GDP
...Expected 0.30 % ...Previous 0.30 %
10:00 GMT or 15:30 IST EU Retail Sales
...Expected 0.90 % ...Previous -1.54 %
13:15 GMT or 18:45 IST US ADP Emp
...Expected 159 K ...Previous 175.39 K
15:00 GMT or 20:30 IST BOC Meeting
...Expected 1.00 % ...Previous 1.00 %
3:30 GMT or 9:00 IST RBA Meeting
...Actual 2.50 % ...Previous 2.50 % ...Expected 2.50 %
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