Wednesday May 7, 2014 - 03:31:06 GMT
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FX Thoughts for the Day - www.fxthoughts.com
Morning Briefing : 07-May-2014 -0330 GMT
A stronger Yen and a sharp fall in the tech stocks in US has unnerved the Asian markets this morning in the backdrop of a weak Chinese economy and the Russia-Ukraine standoff.
The Dow (16401.02, -0.78%) failed to break above 16650 for 3 consecutive days resulting in a fall as expected. We may see further fall to 16300 or lower as long as this 10 week long range of 16000-16600 remains intact..
The Dax (9467.53, -0.65%) 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 (2022.62, -0.27%) faced sharp rejection from 2040 exactly as expected. The index runs the risk of resuming the major downtrend anytime now if not already started. Any attempt to bounce may not be that smooth with 2070-80 expected to stiffly push down any bounce.
The Nikkei (14125.12, -2.30%) has broken below 14200 even before reaching our strong resistance at 14675-700 below which the trend remains weak. Now the price action in the support zone of 14000-13850 remains to be seen. Bias remains neutral.
The Nifty (6715.30, +0.24%) spent the day in a narrow 40-point range and may keep trading in narrow ranges like this till the General Election result day. If it manages to stay above 6700 in the initial hours, a rise to 6750 levels may be expected. Only a break below 6650 and then 6620 would open the door to much lower levels of 6500-6400.
Gold (1311.667) has paused after its rise in the last two sessions, as resistance near 1315.32 holds for now. A break above this level would ensure a rise towards 1320-1330. The double- bottom on the charts indicates near term bullish strength which negates the earlier bearish views. We may see a fall to 1300 before a fresh upward rally.
Silver (19.667) is trading near crucial 19.66 which if breaks may rise towards 20-20.5. The near term range may be restricted within 18.5-20. Overall it is ranged within the long term downtrend.
Copper (3.0550) has been trading near the channel support for the last 5-sessions still aiming to reach 3.10.
Nymex WTI (100.08) may trade within 100.42-98.71 for a couple of sessions now. A break above 100.42 and further 100.76 is needed to confirm a rally upwards. Note that a break below 98.71 could lead to a fall to 97-96 levels.
Brent (107.24) is nearing to test long term support near 107-106.81 from where it may bounce back to 108-109 levels. Near term view is bullish.
A rise in Eurozone sales has strengthened the Euro considerably and that has resulted in stronger Yen and EM currencies. Dollar is running weak against nearly everything.
Dollar Index (79.14) has hit a new 12-month low at 79.06 and currently consolidating near the major support of 79-78.50. Still no sign of buyers is visible and further drop to 78.90-60 looks more probable now. Only a break above 80.15 would be an initial sign of strength.
The Euro (1.3925) has broken above 1.3900 and hit a high of 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 (101.60), 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 (141.49) has remained almost unchanged as both Euro and Yen appreciated considerably. The broader range of 140.00-143.50 must be broken to generate any meaningful move.
Pound (1.6971) has almost reached our target zone of 1.7000-50 as it made a high at 1.6996 so far. Remaining above 1.6850-30 on any correction, it may rise towards 1.7250-90 in the next few sessions.
Aussie (0.9342) broke above 0.9315 to make a high at 0.9367 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. A failure may result in another fall to 0.92.
Dollar-Rupee (60.10) has failed to break above 60.25-28 despite repeated attempts and the fall has resumed in line with our expectation. This failure keeps the possibility of testing the major support zone of 59.80-60 alive very much.
The US yields have dipped a little yesterday and the yield curve continues to flatten. They have crucial supports coming up for the 5Yr (1.67%) at 1.62%, the 10Yr (2.59%) at 2.50% and the 30Yr (3.38%) at 3.35%. The 30-10Yr spread (0.80%) 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 (-0.28%) moved up along with the Euro (1.3925) which broke above the resistance near 1.39. 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 (0.42%) has come to test supports at current levels and we may see a bounce from here taking the yields higher. The US-Japan 10Yr yield differential (1.98%) has been moving in perfect co-relation with Dollar-Yen (101.60) and we can expect it to rise from here if the Dollar-Yen see a bounce from the support at current levels.
The Indian 10Yr GOI (8.77%) has moved up a little but is still vulnerable to a fall towards 8.50-8.60% while below 8.80%.
We have the ECB and BOE Meeting tomorrow. With the Euro rising on the back of a good PMI and Retail Sales data and the low inflation still a concern we need to see what whether Mario Draghi makes any changes in the Monetary policy. While in England with the unemployment falling below 7% the BOE may now consider increasing the interest rates. DATA TODAY
1:45 GMT or 7:15 IST CN Services PMI
...Previous - 51.90 ...Actual 51.40
Australia Trade Balance
...Expected 1.10 AUD Bln ...Previous 1.26 AUD Bln ...Actual 0.73 AUD Bln
...Expected 2.50 % ...Previous 2.50 % ...Actual 2.50 %
EU Retail Sales
...Expected -0.20 % ...Previous 0.10 % ...Actual 0.31 %
US Trade Balance
...Expected -40.10 $ Bln ...Previous -41.87 $ Bln ...Actual -40.38 $ Bln
...Expected 54.50 ...Previous 55.20 ...Actual 54.1
IN Services PMI
...Previous 47.50 ...Actual 48.50
IN COMPOSITE PMI
...Previous 48.90 ...Actual 49.50