Tuesday May 13, 2014 - 03:29:25 GMT
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FX Thoughts for the Day - www.fxthoughts.com
Morning Briefing : 13-May-2014 -0328 GMT
Further rise was seen in Equities overnight. The overall outlook remains bullish and higher levels are possible.
The Dow (16695.47) has broken above previous resistance near 16675 and Dax (9702.46) looks set to break its corresponding resistance today to test 9800.
The Nikkei (14,384.24, +234.72, +1.66%) has seen a huge gap-up opening reducing its immediate bearishness, and can rise a bit more. Still, it remains in an overall downtrend while below 14650. The Shanghai (2054.85) had seen a good rise yesterday and is on course to move up towards 2075-2100.
The Nifty (7014.25) may well continue its vertical rise and go on to test 7100 this week.
Gold, Silver and Copper have risen yesterday on Dollar weakness and on China’s economic reformation while the Oil market also rose amidst Ukraine tensions.
Gold (1295.65) came off slightly from 1299.5. While the crucial resistance zone of 1315-1317 holds, it may consolidate in the 1280-1310 regions for a few more sessions. Silver (19.515) continues to trade below crucial 19.66 levels and unless a break above 19.66, we do not see any signal of rise in the prices. Overall near term looks bearish.
Copper (3.1400) shot up to 3.15 levels as China unveiled steps to reform its economy on Friday. If this sustains there could be a possibility of a rise to 3.20-3.25 levels in the near term but we cannot negate a fall to 3.10 just now. Need to wait and watch for a couple of sessions.
WTI (100.51) has paused after rising to 101.17-100.9 levels and while that holds, it may consolidate a little within 100-101 regions. An initial fall towards 99 could be seen before a fresh rise else a break above 101.17 is required to rise further towards 102-103.
Brent (108.46) is rising higher since the last few sessions but while below 109.16 we may again see a fall to 108-107.5 levels. However if it breaks 109.16, it may target 110 in the coming sessions. Overall it is in a sideways consolidation since Nov’13.
Importantly, Dollar-Yen (102.23) has risen above 102.10, but needs to break above 102.30 today in order to rise further. The Euro-Yen (140.61) has risen as hoped for, but may find some Resistance near 141.00 today. The Euro (1.3754) consolidated sideways yesterday and could test the very important Support at 1.3735 today, especially if the Euro-Yen comes into some selling. Although the stage is set for further Euro weakness in the weeks ahead, it needs to break below 1.3735 in order to decline towards 1.3600.
The Pound (1.6875) is getting Support at 1.6845 and as such the chances of a fall towards 1.6700 are lesser. But, given that there is Resistance at 1.6900, it may range between 1.6800-6900 this week.
The Aussie (0.9354) is not being able to rise above 0.9400 immediately, but it remains stronger than the rest of the currencies. Support is seen at 0.9305 also, well above the 0.9260 Support mentioned yesterday.
Dollar-Rupee (60.0550) could rise further towards 60.20-30 if the RBI comes in to buy again in the morning itself. Else, it could lose some of the advantage it created for itself when it pulled the market up above 60.00 in the last hour of trade yesterday.
The US yields continue to rise slowly and steadily as the supports keep on holding. The 5, 10 and 30Yr can target 1.75%, 2.75% and 3.75% respectively. Even the US yield spreads are up. The 30-10Yr spread at 0.84% and 30-5Yr spread at 1.83%. The US yield curve can now steepen in the coming months.
The Euro (1.3756) remained stable and is testing support near 1.37. But the German – US 2Yr differential (-0.26%) has seen a slight dip. The German 10Yr (1.46%) has come up above 1.45% but may still target 1.40% if it is unable to maintain this rise.
The Japan 10-5Yr yield spread (0.42%) is testing support at current levels and we may see a bounce from here taking the yields higher. The US-Japan 10Yr yield differential (2.05%) is stable as the Dollar-Yen (102.21) trades slightly higher.
In India, the last phase of the General Election getting over yesterday and data showing a rising CPI at 8.59% and IIP at -0.5% we need to see how the markets react today. The Indian 10Yr GOI (8.73%) has remained stable but is vulnerable to a fall towards 8.60% while below 8.80%.
12:30 GMT or 18:00 IST US Retail Sales
...Expected 0.60 % ...Previous 0.67 %
IN IIP (Mar'14)
...Previous -1.80 % Actual -0.5%
IN CPI (Apr'14)
...Previous - 8.31 % Actual 8.59%